With the implementation of the 7th Pay Commission, voices are becoming louder that the real estate sector could gain from rise in salaries and pensions of the central government employees. The news may further boost real estate stocks which are already outperforming benchmark indices since the beginning of the ongoing financial year 2016-17.
Since April 1, 2016, the BSE Realty index surged 18.4 per cent to 1,497.06 till June 29 whereas BSE Sensex advanced 5.8 per cent during the same period. The 30-share benchmark index jumped to 26740.39 on June 29 from 25269.64 on April 1.
Among the 11 components in the BSE Realty index, shares of Indiabulls Real Estate surged 54 per cent during the same period. It was followed by Housing Development & Infrastructure (28.50 per cent), Godrej Properties (19.70 per cent), Unitech (19.70 per cent) and DLF (19.1 per cent).
Others real estate majors such as Sobha, Phoenix Mills, Oberoi Realty and Omaxe surged 15.7 per cent, 14.6 per cent, 12 per cent and 9.3 per cent, respectively.
Amit Modi, director ABA CORP and VP CREDAI western UP said, “The 7th Pay Commission recommendation, in our view, is an important milestone in the real-estate cycle as an increase in salaries of government employees is likely to boost the demand for home purchases. The recommendations are expected to rise in incomes of 3.4 crore employees and pensioners once the state and central governments implement them. Hence, housing sector is expected to be the biggest beneficiaries of the rise in income and spending capacity of government employees.”
Government on Wednesday approved a 16 per cent increase in pay and 23.6 per cent hike in pensions for central government employees, in line with the seventh pay commission’s recommendations. However, it did not approve the 63 per cent recommended increase in allowances.
Equity expert Chandan Taparia of Anand Rathi Financial Services said, “Sentiments will turn further bullish towards the real estate sector after 7th Pay Commission. I believe one can consider DLF and Sobha for a return of upto 20 per cent in the next 3-6 months.”
G Chokkalingam, founder and managing director, Equinomics Research and Advisory said, “The announcement is marginally positive for the realty sector.” He sees upto 20 per cent jump in DLF and Oberoi Realty shares in the next 3-6 months.