1. Real estate may rebound in 2016; top 5 realty stocks that could give good returns

Real estate may rebound in 2016; top 5 realty stocks that could give good returns

During 2015, the BSE Real Estate index wiped off the gains of 2014 as the index plunged nearly 14 per cent to 1,344 on December 31 from 1,555 on December 31 last year.

By: | Updated: January 6, 2016 1:09 PM
Housing660

During 2015, the BSE Real Estate index wiped off the gains of 2014 as the index plunged nearly 14 per cent to 1,344 on December 31 from 1,555 on December 31 last year.

Low investment demand affected the stocks of real estate companies in 2015. During the year, the BSE Real Estate index wiped off the gains of 2014 as the index plunged nearly 14 per cent to 1,344 on December 31 from 1,555 on December 31 last year. The index gained 8.5 per cent in the previous calendar year.

Among the real estate majors, the share price of Unitech retreated the most — 60 per cent in the previous 12 months, followed by Sobha Ltd (down 36 per cent), DB Realty (down 20 per cent), Prestige Estate Projects (down 19 per cent) and DLF (down 15 per cent). On the other hand, Godrej Properties gained 32 per cent during the previous calendar year. Other gainers include National Building Construction Corporation (up 21 per cent), Housing Development & Infrastructure (up 14 per cent) and Omaxe (up 8 per cent).

Jimeet Modi, chief executive officer, SAMCO Securities said, “On account of unaffordable prices coupled with high interest rates and low rental yields, people continued to avoid real estate as an investment in 2015. That was the reason for lethargic activities and subdued prices in the realty sector.”

There has been key policy related progress in the real estate sector like the Cabinet approval of the Real Estate Bill and rationalisation of tax structure for REIT listings in 2015. According to market experts, these steps should bring back transparency in the sector, thereby bringing back consumer and investor confidence in the long run.

Ajay Jain, executive director, real estate group, Centrum Capital, said, “Regulatory bill will boost confidence among the prospective buyers. We may also see some consolidation between unorganized and organized players in the industry. Relaxation of FDI and ECB norms should boost real estate investment during 2016 since it provides exit avenues. Affordable housing will still play a pivotal role with sustainable demand from this space.”

According to ICICIdirect.com, elevated property prices are making real estate unaffordable. Low investment demand, due to muted returns over the last one year, is also a dampener for real estate sector.

Experts believe there might be a pickup of sales in the affordable housing segment in 2016 due to softening of interest rates. The high end segments will take time to recover.

Modi of SAMCO Securities said, “Some cities will see tremendous growth due to increase in urbanisation and industrialisation coupled with the government’s smart cities initiative. So one has to be city specific to take a well-informed call. However, it looks like that the worst for the sector in terms of liquidity is behind and going forward as the prices correct demand will emanate which will help in reducing the inventories and generate liquidity for the sector.”

Jain of Centrum Capital, said, “In 2016, we expect demand to pick up in Bangalore and Mumbai Metropolitan Region (MMR). Also, commercial projects have not been doing very well in the past few years. With very few inventory left of commercial units, we expect the demand to go up in 2016. Further, people have already begun looking at markets like Hyderabad and Kolkata which were not doing well in the last year. However, we expect the pressure to continue in Noida, Navi Mumbai and Ahmedabad.”

If you are planning to invest in real estate stock in 2016 then you should prefer a company with fair past execution track record, strong balance sheet, regional spread, quality land bank and a company with ability to generate strong cash flows.

With the help of brokerage houses, we list 5 top realty stocks that could give good returns in 2016.

Oberoi Realty
Recommended By: HDFC Securities
Why Buy: Oberoi Realty delivered strong pre-sales volume with big launches. While investors were concerned that the Mulund and Borivali projects would see a muted response owing to weak real estate macros, the company surprised with robust sales. Within a month, around 70 per cent of the launch area was sold vs. around 50 per cent for the Goregaon/JVLR projects (achieved over FY10-12). High land bank quality, superior brand recall and healthy access to finance put Oberoi Realty in the top quartile vs Western peers. The share price of the realty major can touch Rs 411.

Mahindra Lifespace
Recommended By: ICICIdirect.com
Why Buy: The brokerage house prefers players who have quality management execution bandwidth and relative strength in the balance sheet. ICICIdirect is positive on Mahindra Lifespace and Oberoi Realty in the sector.

Godrej Properties
Recommended By: SAMCO Securities
Why Buy: Godrej Properties is efficient growth oriented company with manageable debts having diversified portfolio across top cities in India. The company works on asset light model which generates superior returns for the shareholders.

Sobha Ltd
Recommended By: SAMCO Securities
Why Buy: Sobha, a south based developer, is growing consistently inspite of sluggishness in the realty sector. The company has reasonable debts with asset light model operating in south based cities. The company has generated superior return on equity (ROE) of 10 per cent even in sluggish demand phase which gives an indications that during good times the results will exceed expectations.

DLF
Recommended By: SAMCO Securities
Why Buy: DLF is a large player having pan India presence in residential, commercial and hospitality segment. The company has slowly reduced its debt to manageable levels by exiting non-core assets. DLF has managed to generate profits while its other large peers are still struggling. The company has good execution capabilities to deliver large projects with little costs over runs. When the economic growth picks up, the company will be able to generate capital appreciation for its shareholders.

Disclaimer: The stocks are recommended by the respective brokerage houses and not a recommendation from Financial Express online.

  1. M
    Madan Krishna
    Jan 9, 2016 at 3:12 pm
    CHENNAI GST ROAD - ON ROAD PROPERTY - WITHSTOOD THE ONSLAUGHT. FOR - MAIN ROAD PROPERTY - IN CHENNAI, TAMIL NADU - ENTRY FROM NH-45. Prime Vacant Land 5.8 Grounds (13940 sq.ft.) in Singaperumal Koil, Chennai, India on Main GST Road with direct entry from GST Road. Mahindra World City is 1.2 Kms. on one side and Ford Motor Co. is 3.2 Kms. on the other side. Plot with direct entrance from Wide National Highway NH-45. Frontage Width is 46 feet, Rear Width is 56 feet and length is 286 feet. Companies like BMW, Nissan-Renault, Daimler, Enfield, Nokia, Siemens, Hyundai, Ford are in close proximity to this place. The Property has a Security Room with 3-Phase Power Supply and has a Compound Wall of about 11 feet on all sides with a 15 feet gate in the front. Since the Land is located amidst various International Companies, it will be ideally suited for Offices, IT/ITES/BPO Companies, Residential Apartments, etc. Very Ideally suited for Investment Purposes, Immediate Construction of Residential Apartments, Show Rooms, Departmental Stores, Hospitals, Logistics, etc. Appreciation Guaranteed on Investment. In case of interest, please contact:- Mr. K.Aravamudan, Mob:- 0 – 94440 12056. e.mail : VERY IMPORTANT NOTE:- The above Site is not affected by the heavy Rains and Thunder Storms that lashed Chennai just recently.
    Reply
  2. I
    Isupport Villows
    Jul 1, 2016 at 12:57 pm
    Agree with the article! The 5 realty companies that are mentioned have certainly proven their worth in the real estate sector. Their projects have showcased stunning architecture, high quality and attractive prices. I have been impressed with Mahindra Lifespaces in particular. They have been able to live up to their b standards of quality and on time delivery with their projects all across the country.
    Reply

Go to Top