Stocks of real estate companies fell in the range of 5% to 21% in the past seven trading sessions after the government’s decision to withdraw R500 and R1,000 currency notes from circulation as a part of its crackdown on black money. Leading the pack is Housing Development and Infrastructure whose stock fell by 23% over the past seven trading sessions and ended Thursday’s session at R57.25.
The stock of DLF, on the other hand, fell by 22% over the last seven sessions and ended Thursday’s trade at R112. The S&P BSE Realty index fell by 17% over the last seven sessions and closed at 1223.30 points on Thursday.
In a note to investors, Motilal Oswal said real estate is one of the most affected industries as a result of government’s move. “There has been a decline in home purchase transactions. Builders are tied up with operational issues, while buyers are adopting a wait-and-watch approach in anticipation of price correction,” the note said.
“Companies are focusing more on balance transfer cases as that does not involve any cash component. Small builders could face liquidity issues as hard cash may be rendered useless and conversion would take time,” the note added.
The government had declared R500 and R1,000 notes in circulation “not legal tender” with effect from the midnight of November 8.
The Reserve Bank of India (RBI) has released the new series of R2,000 notes from November 10 and R500 notes from November 13. Government’s move is seen as a measure to curb tax evasion and recover illegal income stashed abroad.
The Income Declaration Scheme (IDS), which charged a one-time effective tax rate of 45% on undisclosed income or property, led to declarations of only R65,250 crore.
The S&P BSE Realty index had underperformed the market over the past one month till November 17, 2016, falling by 19.22 % compared to 4.7% fall in the Sensex. The realty index had also underperformed the market from the beginning of 2016 till date, declining 9% as against Sensex’s rise of 0.4 %.