Real estate stocks, especially top names, saw profit booking on June 8 even though the Reserve Bank of India (RBI) kept repo rates steady as was expected lines.
The repo rate is the rate at which RBI lends money to commercial banks. Most of the loans given by banks are directly or indirectly benchmarked to the repo rate, thus a change in it affects the EMI paid by borrowers.
The Nifty Realty index traded with a cut of 1.58 percent led largely by losses in Macrotech Developers, Brigade Enterprises, Godrej Properties and DLF. These stocks have been outperformers in the last few weeks, which means selling is happening at a high.
Industry cheers rate decision
Analysts though are unperturbed and believe since the demand remains strong, the outlook for the industry is favourable but there is some caution as well as the passthrough of previous hikes has not happened.
“This (continuation of rate pause) gives some respite to prospective homebuyers looking to avail of home loans in the near future,” said Anuj Puri, Chairman, Anarock Group. “The unchanged repo rate can help maintain the momentum in housing sales, which has so far been firing on all cylinders in 2023.”
As per Anarock Research, housing sales in the first quarter of 2023 scaled new highs, breaching the one-lakh mark at 1.14 lakh units across the top seven cities.
“Overall, the rate decision is positive for the home loan and real estate sectors,” said Aamar Deo Singh, Head Advisory, Angel One Ltd
Strong demand
This year, Nifty Realty has risen 14 percent against about a 3 percent jump in the Nifty during the same period. The outperformance has come on the back of record pre-sale bookings and a decline in commodity prices that is expected to improve margins for real-estate stocks.
“Real estate loan demand from both housing and commercial segments has remained strong, despite a 150 bps rise in the base lending rate (MCLR) over the past year. However, we remain cautious about the industry, as the complete transmission of the repo rate hikes to lending rates is yet to be observed,’ said Shishir Baijal, Chairman and Managing Director, Knight Frank India.
The industry is already looking forward to rate cuts as inflation has dropped to the RBI's tolerance band of 2-6 percent. Economists, however, don't expect a rate cut before 2024.
“The unchanged policy stance indicates the flexibility of the central bank. Largely, we do not expect interest rates to go up from current levels. The RBI may start easing rates by Q1CY24 as inflation is expected to be well below the 6 percent mark for FY24,” said Nish Bhatt, Founder & CEO, Millwood Kane International, an investment consulting firm.
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