October 24, 2017

 

Just after the Festival of Lights, shares of property companies lit up Dalal Street on October 23 on expectations that a raft of festive season offers and increasing confidence among home-buyers would induce them to reach for their cheque book.

Realty stocks climbed as much as 18% on a day the broader gauges were flattish on resumption of trading in Mumbai after the Diwali weekend. Kolte-Patil Developers, Sunteck Realty , Puravankara, and Sobha registered fresh 52-week highs, with buyers expected to re ward developers that have good completion and delivery records. Shares of Arihant Superstructures, Ansal Buildwell, DLF, Anant Raj, Godrej Properties and Peninsula Land also rose between 3% and 8%.

With the uncertainty around the implementation of Real Estate (Regulation & Development) Act now over, the formation of regulatory authorities in key property markets has helped build confidence among home-buyers, analysts said. These factors, combined with low home-loan interest rates and rising affordability of residential units, could stoke a revival in demand in the second half of the year.

"Sales have bottomed out and with the economic growth, demand is likely to rebound from here," said Alok Ranjan, Head (PMS), Way2Wealth. Brokerage fir m Edelweiss Securities said that key regulatory uncertainties -RERA and GST -are no longer factors determining off-take. "We expect an uptick in residential new sales in the coming quarters across key markets...This, we believe, is likely to be driven by favourable macros, low interest rates, improving affordability and significant pent-up demand," Edelweiss said in a note.

It believes that interest rate subvention for first-time buyers from the middle income group may incentivise fence-sitters to buy homes. Edelweiss also said that it expects office space demand to remain strong. Shares of Godrej Properties, Sobha and Kolte-Patil have appreciated between 109% and 219% since the beginning of the year. Kotak Institutional Equities expects Sobha to report volume growth in its 2018 earnings. The developer's operating cash flow will remain positive, but debt may increase on account of some land payments, it said.

"While both these regulations (RERA and GST) will be beneficial for the sector, in the short to medium term, the decline in sales volumes and a fall in prices could lead to pressure on margins and a squeeze on valuations," said Amit Agarwal, Research Analyst, Institutional Equities at Nirmal Bang.

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