Apart from auto sector stocks that have been riding on softening input costs and high demand backlog, some real estate names have emerged as another set of winners through the last few weeks.
Nifty Realty is one of the biggest gainers in the last one month, rising over 7 percent. Some stocks from the space have risen as high as 30 percent in the period all thanks to record sales they registered during the first quarter of fiscal 2023.
Sobha, which builds residential buildings in Bengaluru, Gurugram, GIFT City and some other parts of the country achieved the highest ever sales volume, value and price realisation in this quarter. Similarly Oberoi Realty – a Mumbai based premium real estate developer – said its unit sales in April-June period spiked over four times compared to last year.
“The real estate sector is performing as the residential housing prices are increasing and the unsold inventory is declining,” said Mohit Nigam, Head - PMS, Hem Securities. “Many cities have seen an increase in housing prices surpassing pre-covid levels. Along with this, margins of the real estate players will also improve as prices of steel, iron ore are decreasing and the government is also supporting the real estate sector by reducing stamp duty.”
However, there is a good chance that this may be the peak of sales in this cycle, as there are signs of troubles. Analysts have also advised investors to become cautious as there are headwinds for the sector going ahead.
If we pore into granular details in Sobha’s number, in at least four locations out of nine it has building projects – Gurugram, Chennai, Kochi and Kozhikode – it saw a drop in sales during Q1FY23 compared to Q4FY22. Thus, overall quarter-on-quarter growth was negligible – a sign of sales plateauing.
A similar trend was seen in sales data disclosed by Oberoi Realty. It said it sold 164 units in the June-ending quarter compared to 234 units in the March-ending quarter.
Other signs of worry are the rising interest rates which are yet to hit the peak and rising prices of apartments across the country, driven by inflation in input cost prices for real estate companies.
The management of Sobha also pointed out these issues in its recent quarterly update. “We witnessed a series of interest rate hikes by central bankers, including in India to counter the inflation and expect to see further increases. This has increased the home loan rates as well for our customers. Given this backdrop, we have continued our calibrated price increases in all projects & cities to counterbalance the inflationary forces,” it said.
This will likely hit the demand for homes.
“We believe investors should be cautious as higher interest would drive up mortgage rates, which in turn would dampen demand,” said Nigam.
Most banks have already taken interest rate hikes, passing through the policy rate increase in full. There are predictions that the terminal interest rate for home loans may be in the vicinity of 9 percent compared to 7 percent in the last couple of years.
Nishit Master, Portfolio Manager, Axis Securities, also said according to their channel checks, the current environment remains strong for real estate players, but if the interest rates keep rising at some point in time the sales will get impacted.
Moreover, we have seen many job losses, especially in startups, which may also impact the demand. As most startups are centered around major cities – Bengaluru, Delhi, Mumbai – thus huge hiring by them was also fueling the demand, But as there have been indiscriminate firings, many other prospective homebuyers may also get cautious.
“Another important variable is a rise in the salary or income levels of consumers. If there is a slowdown due to a global recession, the impact on demand for real estate can be bigger,” Master said.
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