Realty stocks have made impressive gains at stock exchanges on the back of positive investor sentiment generated by sops offered by the government for the real estate sector this year.
But the moot question is this: how long will bulls will bet on reality stocks, given that the sector fears escalation in project cost after implementation of the Real Estate (Regulation and Development) Act 2016 (Rera)?
The BSE Realty Index, which tracks movement in major realty stocks, has advanced by over 42 per cent since February 1, the day the Union budget was presented in Parliament, compared to 7.9 per cent rise in the Sensex. Nifty Realty too has beaten the NSE benchmark stock market index Nifty by a similar margin.
Finance minister Arun Jaitley had announced several sops, including infrastructure status for the sector in this year’s budget, sparking off a bull run in realty stocks.
The feel-good factor generated by the prospects of Rera taking effect from May 1, also helped in boosting investor sentiments, which propped up the bull run.
While realty indices at the BSE and the NSE have made similar gains, the performance of individual stocks have been widely divergent.
While Indiabulls Real, Godrej Properties and Ashiana Housing have been top performers at exchanges, gains in stock price of DLF and Omaxe have been relatively limited.
Indiabulls Real’s stock price has more than doubled to Rs 151.80 since February 1. Indiabulls Real’s share price was Rs 75.40 on January 31, but had gone up to Rs 151.80 as on May 5.
Godrej Properties’ share price was Rs 330.65 on January 31, but that too had climbed up to Rs 525.30 on May 1, registering 58.8 per cent gains.
Ashiana Housing’s share price had risen to Rs 228.10 on May 5 from Rs 144.40 on January 31, making 58 per cent gains. On the other hand, DLF and Omaxe’s shares logged relatively muted gains.
DLF’s closing share price on May 5 was Rs 185.65, compared to Rs 134.95 on January 31, posting 37.5 per cent gains.
Omaxe’s stock made gains of 17.20 per cent during the same period. Omaxe’s share price was Rs 193.15 on May 5, compared to Rs 164.80 on January 31.
Says Surendra Hiranandani, chairman and managing director, House of Hiranandani, “Rera will bring in a systematic approach and enhance transparency, which will aid growth of the sector. To the buyers, it safeguards their interests: brings transparency, ensures accountability and timely completion of projects.”
But he also added “Rera does not address the concerns of the developers, thereby not providing a level playing field for all the stakeholders.”
Says Hiranandani: “Though the objectives are noble and correct, we believe lack of clarity on the various mechanisms proposed will only add to costs through delay, making projects not only more expensive, but ensuring that affordability continues to be a distant dream. For instance, it is not clear whether Rera applies to under-construction units as well. The central rules state that these would apply to under-construction units while state rules say otherwise. But, can existing projects comply with retrospective legislation,” wondered Hiranandani.
Meanwhile, according to RICS and Cushman & Wakefield, the Indian real estate is on the cusp of change as the commercial office segment moves closer towards corporatisation.
“Three major forces are likely to disrupt the way commercial office market functions, albeit in a positive manner - changes in economic policies of major economies in the world, changing ownership pattern and the shift towards new commercial tenancy models such as co-working,” says the report titled, “Commercial Office Real Estate: Positive Disruptions- Beacons of Change”.
Points out Sachin Sandhir, global managing director – emerging business, RICS: “The biggest change in the sector will be brought about by its institutionalisation. As institutional investors gain ownership in commercial office assets, better corporate governance and best professional practices are slowly being adopted by the commercial real estate sector. With Reits coming in, we will see an increased demand for professional valuers of REIT assets.”
“Also, professional management and valuation of properties as per international standards will become the norm, steering the sector towards institutionalisation, once Reits are listed and the Rera is fully enforced,” he adds.
noor.mohammad@mydigitalfc.com
