Real estate sector is expected to get a big boost soon especially after the government announced incremental steps by creating a "professionally managed" Rs 25,000 crore fund for boosting stalled middle and low-income RERA registered housing projects that are net worth positive.
Finance Minister Nirmala Sitharaman on November 7 said the government will put in Rs 10,000 crore in this alternative investment fund (AIF) while State Bank of India and LIC would provide Rs 15,000 crore, taking the total revival package to Rs 25,000 crore.
The finance ministry has announced several measures to boost the economy that has been in a slowdown phase for many quarters now. The importance given to support real estate will have the largest multiplier impact on the economy as it will benefit many sectors which are dependent on the same.
"Government's initiative to kickstart the moribund residential real estate sector through formation of an AIF Category II fund with substantially large initial corpus of Rs 25,000 crores and promise of top-up subsequently both from the contributors, as well as others including sovereign wealth funds, will be strongly welcomed by the market," Ajay Bodke, CEO-PMS at Prabhudas Lilladher told Moneycontrol.
Experts feel if this reform gets implemented properly then not only the real estate sector but other related six sectors and several stocks will also rake benefits.
"In the realty sector, top picks are Oberoi Realty, Godrej Properties whereas Sunteck Realty and Sobha could also do well. In housing finance, HDFC will continue to dominate whereas Can Fin Homes could also do well from here," Amit Gupta, Co-Founder and CEO, TradingBells said.
Ajay Bodke (CEO PMS Prabhudas Lilladher feels the likes of Piramal Enterprises, L&T Finance, JM Financial, Edelweiss (even the likes of Indiabulls Housing Finance and DHFL), banks saddled with large real estate exposure like Yes Bank, IndusInd Bank and quality names like HDFC should lead the charge.
Real estate developers like DLF, Godrej Properties, Oberoi Realty, Sobha, Puravankara, Kolte-Patil, Brigade Enterprises etc as well as EPC companies deriving substantial revenues from real estate like NBCC, Ahluwalia Contracts and of course L&T would remain in focus, he said.
VK Vijaykumar, Chief Investment Strategist at Geojit Financial Service feels the proposed AIF is better than the earlier one since this also includes projects referred to NCLT.
This will be beneficial not only to the stressed real estate sector but also the home finance and NBFCs which have lent to developers, he said.
Kotak Institutional Equities also feels the move directionally positive for NBFCs, especially the ones focused on real estate loans.
"Establishment of such a large fund indicates the government's intent to support the sector which bodes well for lenders. Not only does this support resolution of real estate NPLs/NCLT cases and NBFCs that are struggling on liquidity to fulfil their commitments, but other lenders (banks and large/well-funded NBFCs) can also constructively start looking at the sector. Effective execution remains crucial," the brokerage said.
Real estate sector has one of the largest multiplier impact on the economy with substantial benefits accruing to the asset quality of banks & housing finance companies that were staring at spike-up in NPAs from this sector.
By including RERA registered net worth positive projects that are substantially completed the government has ring-fenced the risks to a large extent, Ajay Bodke said.
With nearly Rs 2 lakh crore projects stuck in NCR and Rs 97,000 crore projects in MMR, this fund has the potential to act as a force multiplier to impart the necessary push to revive economic activity in the nerve centres of Indian economy, he added.
As per media reports, approximately 1,600 projects with an estimated 0.5 million units are stalled at various stage of construction. Kotak noted that unsold inventory across key cities stood at 1 million units with an aggregate area of 1.2 billion square feet as of August 2019, whereas aggregate sales in FY2019 stood at 479 million square feet (source: PropEquity).
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