Real estate sector: What are experts betting on?

In an interview to CNBC-TV18, Aatash Shah, Real Estate Analyst, Nomura India said that at this point of time real estate sector is probably likely to come back into the limelight, as far as investors are concerned. This is on the back that the Reserve Bank of India (RBI) is also possibly likely to take a break in raising interest rates. He advises buying Housing Development and Infrastructure (HDIL) in the sector.

Surajit Pal, Research Analyst, Elara Capital is bullish on Parsvnath Developers , Godrej Properties and Mahindra Lifespace Developers .

Below is a verbatim transcript of their interview with CNBC-TV18's Anuj Singhal and Latha Venkatesh. Also watch the accompanying videos.

Q: As a house are you all now recommending that you have to start looking at real estate stocks seriously? If so, which?

Shah: I think that the market at these kind of levels, real estate has been one sector which has underperformed significantly. At this point of time, given the fact that the RBI is also possibly likely to take a break in raising interest rates, this sector is probably likely to come back into the limelight, as far as investors are concerned.

Q: What is bothering then some of these Mumbai based realty players because we have seen prices go back to previous peak almost across entire Mumbai region, but stocks like HDIL, Indiabulls Real Estate have been big underperformer, in fact Indiabulls Real Estate has to be the biggest underperformer? What could be the reason for that?

Shah: As far as the Mumbai based players are concerned, one that has been a lot of concerns from investors on the sustainability of this price increase. But from what we are seeing as of now inventories for developers are at new lows, even lower than 2007 levels. This is keeping prices high and is likely to keep them high for the next 9-12 months at least, till we see significant supply coming back into the market, especially in central Mumbai.

Indiabulls, of course, has some exposure to the central Mumbai market plus there have been some concerns on the governance front also. So that has led to some kind of underperformance on the stock.

HDIL after it has done its qualified institutional placement (QIP) recently, I think issues regarding its funding for the airport project should be sold and that could now lead to some bounce back again in the stock.

Q: What is the sense you are getting at Elara or what are your recommendations? Are you saying that you should now start chasing these set of stocks which perhaps still have some value left and which ones?

Pal: The issue of underperformance of the real estate sector, I believe one of the main reason is that Mumbai based real estate guys are basically seeing lot of inventory. I bit differ with other analyst. Going by the numbers, around 98 million square feet is ready for possession in MMRDA area including Mira Road, Vashi or Thane area. If I add financials investors’ position then it will be roughly around 148 million square feet. The point is that everybody keeping their finger crossed that if this inventory is not released by next six months including this festive season, till the end of March of considering tax incentive then they are in a big problem in terms of working capital management. If two-third of this total inventory is not relieved then it will be a problem. I think this is one of the big hangover for Mumbai vicinity guys.

As far as Delhi is concerned, I think Commonwealth has given them a bit of momentum. But how far it is sustainable depends on how much property will be released post Commonwealth Games or how much demand will be raised over there. Till Noida it’s okay, but Greater Noida and all those areas is not sustainable, Gurgaon is okay.