Realty space brimming with positivity; should you bet on the sector?

Realty stocks have been witnessing remarkable buying interest in the new year so far.

The Nifty Realty index underperformed the benchmark index Nifty in the calendar year 2020 when it rose just 5 percent while Nifty clocked a gain of 15 percent.

High debt, unsold inventories, a slowdown in the economy were among the top factors that weighed on realty stocks in 2020.

However, the Nifty Realty index has been outperforming Nifty in CY21 as it is 8 percent up against a 4 percent gain in the benchmark Nifty as of January 12 close.

In days to come, realty stocks may rise even higher as low-interest rates, changes in government policies and economic recovery are expected to augur well for the sector.

The underperforming sector for the last 5 years could well turn out to a Dark Horse in the year 2021, either in physical form or in the financial form, in the investors’ portfolio, Sunil Rohokale, MD & CEO, ASK Group told Moneycontrol.

The next five years Real Estate will be back into investors’ portfolio either in physical form or in financial form. -Rohokale, MD & CEO, ASK Group

In physical form, people would upgrade to their dream home which could be bearing completion amid low interest rate regime and attractive pricing plans, he added.

Tushar Pradhan, CIO of HSBC Global Asset Management India, in an interview with CNBC-TV18, said that the current interest rates are good for realty stocks and the large realty players are much better placed to benefit from it owing to better brand and balance sheet.

“If you can build an affordability index for an average person wanting to buy a house, probably the EMIs per lakh will be the lowest because of the interest rates which we have today,” Pradhan told CNBC-TV18.

Global brokerage firm Jefferies has recently raised target estimates for all realty stocks in its coverage. Godrej Properties and DFL are its top picks.

Jefferies expects residential sales to cross 2019 levels, inventory to fall to an 8-year low by the end of 2021 and prices to rise by more than 10 percent over the next two years.

A new residential cycle start should become evident over 2021 as both end users and investors get back into action.

Maharashtra government has cut real estate premiums by 50 percent till December 31, 2021, which as per the experts, is a win-win for home buyers as well as developers.

In November, the Karnataka government had slashed the stamp duty on houses costing less than Rs 20 lakh to 3 percent from 5 percent.

Following in the footsteps of Maharashtra and Karnataka, more states are considering reducing stamp duty to boost real estate sales, Housing Secretary Durga Shanker Mishra has said.

“Besides Maharashtra and Karnataka that have reduced stamp duties, some more states are seriously considering doing the same,” he told reporters.

Cuts in stamp duties and premiums are positive signs for the sector.

Talking to CNBC-TV18, Pirojsha Godrej, Executive Chairman of Godrej Properties said that the concerns of last year have daded now and the year 2021 will be a better one for the sector.

"We are starting the year (2021) on a positive note. There were a lot of concerns last year with COVID and the lockdown; those concerns passed us. We had a good first half of the financial year from a sales volume perspective. We expect the second half to be much better and especially the Q4 where we have a large number of launches planned." Godrej said.

Brokerage firm Prabhudas Lilladher believes the sector is picking up so select stocks from this sector should continue to soar high in 2021.

"Godrej Prop, Oberoi Realty, Sobha for the long-term and DLF would be a good trading bet," said Prabhudas Lilladher.

Santosh Kumar Singh, Head of Research, Motilal Oswal Asset Management Company, believes real estate may outperform in 2021.

"This is one sector which has been under stress for a better part of the last decade. We have seen massive consolidation in the residential real estate markets. With (a) low-interest rates (b) high liquidity (c) flat property prices for almost 6 years (d) better regulations and (e) better quality corporates, this sector seems primed for a revival," Singh said.

Brokerage firm ICICI Securities underscored while COVID-19 concerns may linger in 2021, the broader theme of consolidation in favour of large, organised developers may accelerate in 2021 as a number of unlisted developers continue to remain in financial trouble and grapple with stalled projects.

Q2FY21 residential sales bookings for our coverage universe stood at 70-100 percent of Q2FY20 sales, which points to continued consolidation and market share gains.

For 2021, all listed developers have a number of planned launches and continue to focus on monetisation of ready inventory

- ICICI Securities

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