The government’s Rs 25,000 crore bonanza to revive the moribound real estate sect or could be relatively more beneficial for the top listed players in the segment, which have already been successful in wading through the slowdown.
The Cabinet on Wednesday approved to establish an alternative investment fund (AIF) in which the government will contribute Rs 10,000 crore. It will also get investments from institutions such as LIC and the State Bank of India.
“Real estate developers such as DLF, Godrej, Oberoi, Sobha, PuravankaraNSE -2.59 %, Kolte-Patil, Brigade, etc. as well as EPC companies deriving substantial revenues from real estate like NBCC, Ahluwalia and of course L&T would remain in focus,” said Ajay Bodke, CEO – PMS at Prabhudas Lilladher.
Anarock, a real estate consultant, in a report said nine top players — DLF, Sobha, Puravankara, Prestige Estates, Brigade Enterprises, Mahindra Lifespace Developers, Godrej Properties, Oberoi Realty and Kolte Patil Developers — sold properties worth Rs 22,800 crore in FY19 thanks to the millenials buyers who moved to ‘brands’.
Their choice for select top players has helped them beat the slowdown in the sector. Anarock said these companies together sold 44 million square feet of housing in fiscal year 2019 against 17 million square feet fiscal 2017 (DeMo period) and 27 million square feet in fiscal 2015.
The outperformance in the market also helped the respective stocks race past their peers. Except Sobha and Puravankara, rest of the abovementioned names have given positive returns year-to-date (YTD). Godrej Properties is up 47 per cent, Brigade Enterprises 40 per cent, Prestige Estate 37 per cent and Oberoi Realty 12 per cent in the ongoing calendar year. BSE Realty index is up 20 per cent, but it is down over 21 per cent from the level two years ago.
Sameer Narayan, market expert, sees players that are content with what they do outperforming. Thus, he expects them to command the appropriate valuation. Talking about Godrej Properties, he said, “There have been six launches which have been received well in the market. The commentary as well as the delivery is completely in sync; the valuations should maintain and so should the growth rates,” said Narayan.
In recent years, real estate sector has seen a collapse of big players like Jaypee and Amrapali, apart from the slowdown in sales. The sector also had to restructure itself to conform to Real Estate (Regulation and Development) Act, 2016.
The issue of stalled and delayed housing projects has also driven homebuyers to listed real estate developers to mitigate risks. With the formation of the fund, however, the issue is likely to be resolved.
“The fund will help nearly 1,600 stalled housing projects in the country and it is positive that being in NCLT or being declared an NPA will not be a stumbling block to prevent stalled and delayed projects from approaching the fund,” Niranjan Hiranandani, President of NAREDCO and MD of Hiranandani Group.
Despite the announcement, among other problems plaguing the sector is a tepid demand scenario partly because of high prices. Market experts like Abhimanyu Sofat Abhimanyu Sofat, VP-Research at IIFL and G Chokkalingam of Equinomics find high prices a hindrance in their business growth.
Allied sectors to gain as well
The announcement also augurs well for real estate related sectors as demands for construction material will spike. “Positive impact of the move include generation of employment, revival of demand for cement, iron and steel industries and relieve stress in other major sectors of the economy,” Hiranandani said.
As per an estimate, projects worth Rs 2 lakh crore in Delhi-NCR and Rs 97,000 crore in Mumbai Metropolitan Region are stalled. Experts believe this fund has the potential to act as a force multiplier to impart the necessary push to revive economic activity in the nerve centers of Indian economy.
Bodke believes stocks such as Piramal Enterprises, L&T Finance, JM Finance, Edelweiss, India Bulls Finance, DHFL from housing finance sector, banks saddled with large real estate exposure like YES Bank and Indusind BankNSE 2.96 % and quality names like HDFC could gain.