Real Estate Sector Analysis
3 min read
In this blog, we will be discussing the developing scenario in the Real Estate Sector and what Investors should take a call regarding the same for the long run. So let us start!
Introduction:
Nifty Realty index increased by 4.79% and touched its all-time high of 417.75. Major Real Estate Stocks are trading at their All-time high levels on the account of a strong rebound in property registrations, Bulk Buying in Real Estate by Entry Level Employees, recovering Quarterly numbers of Real Estate Companies, and improved outlook of the Indian Real Estate Sector.
Real Estate Stocks at All-Time Highs:
- All the real estate stocks are witnessing all-time high levels in the current market scenario.
- The last time when the real estate stocks were rising was in Euphoric Market Situation, wherein the economy was growing at the rate of 7%-8%, with inflation the same was around 12% to 13%. At the same time, the profitability of the companies and stock was at around 12%-15% but the stock of real estate was growing at a significant rate of 30%-40%.
- The Real Estate Sector witnesses a glorious phase between the year 2005-2015. Post that, the same sector went through Price Correction and Time Correction.
- Specifically, the Northern Region of the country went through the price correction, where the prices of the real estate have gone down, but on the western, southern, and eastern parts of the country, there has been time correction.
Changing Dynamics in Real Estate Sector:
- In the last 5-6 years, Bulk Buying in Real Estate remained Muted due to subdued Housing Demand.
- Sluggish Cycle in Real Estate Sector started reviving due to Fresh Bulk Buying by Entry-Level Employees.
- Rebound in Indian Real Estate Market is Expected.
- The market started Discounting the Future Cash Flows of the Real Estate Companies.
- As per the developing scenario, the real estate sector still needs time of around a couple of years to revive.
Key Factors Supporting the Real Estate Sector:
- Work from Home amid Pandemic: The developing work from the home culture in the country would also play a key role in driving the demand for real estate in the country. As the growing culture of work from home will demand larger affordable and desirable spaces in the long run.
- Interest Rates are at All-Time Low: Banks have cut home loan rates to make it more competitive which are also playing a key factor in influencing demand in real estate sectors. Also, Home Loans are considered to be the safest of the loans, as houses are kept in a mortgage against the loans and hence become an easy option for recovery.
- Government’s Push for Affordable Housing: The Government push towards Affordable Housing Schemes via subsidies, tax benefits, etc. has also played a great role in the rising demand for Real Estates in the country, due to these reasons the effective interest rates have also gone down by at least 3%-4%.
- Lower Stamp Duty in some states: Some states have also lowered down the stamp duty on real estate.
- The rise in demand for commercial & Retail property.
Green Shoots for Indian Real Estate Sector
- In Warren Buffett’s global residential real estate brokerage – Berkshire Hathaway has also forayed into the Indian property market which helped to lift sentiments further
- According to the RBI’s recent Financial Stability Report, unsold inventory levels have dropped steadily in the last 4 quarters to around 7 lakh (a two-year low) as of March 31, 2021, from around 8.5 lakh in the first quarter of FY21.
- As per Collier’s report, the Private Equity Investment in the Indian Real Estate sector reported 2x growth to $2.9 billion in H1 2021 as compared to H1 2020. It is expected to touch a $5 billion mark.
- Launches of new units have progressively gone up in the last four quarters to over 6 lakhs in Q4 of FY21.
Conclusions:
As per the developing scenario in the Real Estate Sector, the sector looks quite attractive. But Investors looking for any stock selection in this sector should carefully opt for a company with strong corporate governance, good financials, and other required factors. This study will not be direct advice to pick stock from this sector and hence one should carefully watch over the selection on these stocks.