BSE Realty index trades at three-year high, posts best return in 2017 so far

By: | Published: July 20, 2017 3:23 AM

Market watchers said apart from the attractive valuation, measures such as Real Estate (Regulation and Development) Act, 2016 (RERA) and the government’s thrust on affordable housing also boosted investor sentiment.

BSE Realty index, sensexBoth Indiabulls Real Estate and Unitech have risen more than two-fold in 2017, followed by DLF, Godrej Properties and Phoenix Mills, which have surged 82%, 69% and 45%, in that order.

Amid slowdown and liquidity crunch in the real estate sector, the BSE Realty Index gained 1.5% on Wednesday to close at 2,174.19. The realty index, currently trading at a three-year-high level, has generated the best return among the BSE sectoral indices this year so far. While the realty gauge rallied 72% since January, the benchmark Sensex yielded a gain of  20% during the same period.

Market participants attribute the revival in the index  to the renewed hope of a  rate cut by the Reserve Bank of India (RBI) in its monetary policy review next month as the inflation softened further to 1.5% in June from 2.2% in May.

While the timely payment of  interest in respect of some non-convertible debentures (NCDs) attracted investors  to  Indiabulls Real Estate on Wednesday, a gradual increase in stake by investor Dilipkumar Lakhi earned Unitech attention in July. The investor Dilipkumar Lakhi hiked  stake in the Delhi- based company by 2.2% to 6.6% during the period, an exchange filing said.

Both Indiabulls Real Estate and Unitech have risen more than two-fold in 2017, followed by DLF, Godrej Properties  and  Phoenix Mills, which have surged 82%, 69% and 45%, in that order.

Market watchers said apart from the attractive valuation, the slew of measures such as the Real Estate (Regulation and Development) Act, 2016 (RERA), and the government’s thrust on affordable housing also boosted investor sentiment.

As Karnataka became the second major state to notify RERA  following Maharashtra, shares of Bangalore-based companies also gained momentum. Prestige Estates Projects and  Sobha have gained 47% and 65% respectively so far this year.

Foreign brokerage,  JP Morgan which remain over weight on Prestige Estates and Sobha Ltd expect a major consolidation in the Bangalore property market.

“We think Bangalore’s residential market is now beyond its peak supply levels and unsold inventory is already down 12% from peak. Further, with the implementation of RERA, new launches are likely to remain low through 2017. This then improves the set up for a demand recovery in 2018 as the market works through excess supply,” the brokerage wrote in a recent note to investors.

The brokerage further added that “As demand improves (improving affordability/ lower rates), we think the residential market set up for 2018 onwards looks attractive. Further, additional market consolidation towards organised developers with low funding costs should additionally improve market share in a growing market for these companies.”

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