Moneycontrol Pro Panorama | Will the good times in realty continue?

Will the outperformance of realty stocks go on? Going by the stellar September quarter results of listed firms, there is still some steam left in the sector.

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The Nifty Realty index has been outperforming the benchmark Nifty 50 by a wide margin in the post-COVID period. In the past one year, while the Nifty gained 7.1 per cent, the Nifty Realty rose 53 per cent. The outperformance holds even for a three-year comparison during which the Nifty rose 55 per cent while the Nifty Realty vaulted 184 per cent!

True, this kind of jaw-dropping outperformance cannot be without fundamental reason. The biggest contribution perhaps came after the COVID-19 pandemic increased the sentiment among people to own a home. Meanwhile, the move to reduce registration fees on residential units in some states such as Maharashtra gave a boost to home sales.

Property consultants are all on the same page. Data collated by them show a strong and sustained uptick in home sales until the first nine months of calendar year 2023, mainly driven by the top seven cities in India. Furthermore, a note by JLL India points out that launches by branded developers have been in the spotlight and translating into sales.

Property developers partly owe this to the regulatory action taken just prior to the pandemic outbreak in driving transparency and stringent compliance in the sector as a whole. This explains the euphoria in realty stocks, particularly in those counters which have a higher exposure to the housing sector. Of course, these developers have a higher share of premium housing, which has been leading sales in the last one to two years.

Will the good times in the real estate sector continue? Will the outperformance of realty stocks go on? Going by the stellar September quarter results of listed firms, there is still some steam left in the sector. Media releases of most listed firms hyped pre-sales figures, as the highest-ever quarterly sales!

Robust rentals also drive home sales. A report by Anarock Property Consultants stated that rental yields, which have never been spectacular, have risen across all major cities in the nine months of 2023, with Bengaluru recording the highest.

But there are pockets of concern, too. The share of affordable housing has been steadily falling, which would endorse the K-shaped recovery (post-pandemic) being voiced by some economists.

Furthermore, as supply in premium housing increases, resistance to price increases by developers could see demand falter and widen unsold inventory. Land acquisition prices could be a spanner in the works for mid-sized housing companies. If this happens, it could be the tipping point for real estate companies leading to a strain on their cash flows. This, in turn, may be a dampener for realty stocks that are still on a roll.

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Technical Picks: Tata Motors DVR, Tata Motors, ITD Cementation, Bajaj Finance and Castor seed (These are published every trading day before markets open and can be read on the app).  

Vatsala KamatMoneycontrol Pro