A blessing in disguise: Will the real estate sector see a recovery amid rate hikes?

After the latest rate hike by the Reserve Bank of India (RBI), analysts have now turned sceptical about the real estate sector revival, which has been ailing for quite some time.

A few experts are suggesting investors keep off the rate-sensitive stocks, including real estate, for some time, while several analysts are positive about them thanks to RBI's announcement and revival in demand.

After analyzing the takeaways from the post earning conferences, interactions with developers and Q4 numbers, brokerage firm Elara Capital expects healthy momentum likely to continue.

"Industry continues to witness a structural positive shift in housing demand, with fundamental demand drivers in place," it said.

"Large developers with better balance sheets may continue to increase their market shares and continued demand strength, low inventories, gradual price hikes, low-interest rates and conducive government policies are propping industry dynamics."

Elara believes that the residential sector's performance is outstanding, whereas the office and retail segments are witnessing a bounce back. Hospitality is also recovering. "Slow-down in the residential segment and high home loan rate are the key risks to the market," it noted.

The FY22 witnessed leading listed developers posting record presales, aided by a combination of market share gains and launch cycle regaining momentum, said other analysts.

Traction was broad-based across segments, with CY21 witnessing the highest growth traction across sectors, whereas pan-India inventory overhang is also down, said Dolat Capital in a report.

"We expect these levels to keep improving, given supply levers are intact ‐ access to funding largely concentrated in the organized players and the rising cost of construction and land, thus, aiding further industry consolidation," it added.

"Expect near‐term sector performance to be relatively muted as the market will look for evidence of sales sustaining in a rising interest rate and cost environment," it added further.

Other analysts see the monetary policy as a blessing in disguise for the real estate sector. The central bank increased the limits for individual housing loans by cooperative banks and permitted rural cooperative banks to lend to commercial real estate.

Yash Gupta, Equity Research Analyst, Angel One, said: "As expected, the repo rate was hiked by 50 bps, but the most important thing for real-estate companies is that the RBI has doubled the limit of loans from co-operative banks."

This will help the cooperative banks give more housing loans, he added. "We continue with our buy call on Sobha Developers and Oberoi Realty."

Elara Capital is positively biased towards real estate, led by continued momentum in the residential segment, revival in commercial and retail segments and continued market share gain by top developers.

"We reiterate Buy on Sobha Developers, Brigade Enterprises, Prestige Estate, Oberoi Realty and Accumulate on Godrej Properties," said Elara Capital.

Dolat Capital is extremely bullish on Prestige Estates and DLF due to their aggressive expansion mode, large land reserves, and a healthy mix of annuity income. The brokerage is also positive on Oberoi Realty.


(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)