Investors in real estate stocks on Dalal Street might end calendar 2017 on a high. But market experts are extremely pessimistic on the realty players having operations in Noida and Gurgaon.
Select real estate companies in the NCR region have already more than doubled investor wealth so far in this calendar year.
Shares of Noida-based developers JP Associates and Jaypee Infratech have risen 127 percent and 82 percent so far this year. Both the companies have huge debt load on their balance sheets.
Ace investor Rakesh Jhunjhunwala has either trimmed his holding in JP Associates from 1.03 percent at the end of June quarter or may even have exited the stock as shareholding data doesn’t reflect any stake below 1 percent. His name didn’t figure in September quarter shareholding data.
Share of Gurgaon-focussed players DLF and Omaxe have risen 51 percent and 28 percent, respectively, so far in 2017. The BSE Realty index is up 66 percent year to date.
Sales volume of residential property has declined sharply in Noida and Gurugram over the past one year and is expected to remain subdued, brokerage Nirmal Bang Securities said in a research note.
Selling prices have declined sharply, by up to 40-50 percent in Noida and 20-30 percent in Gurugram, it said.
The drop in volume is around 80 percent from two years ago in case of Noida and 50 percent in the case of Gurgaon.
Analysts say uncertainty caused by the implementation of Real Estate (Regulatory and Development) Act, or RERA, and negative reports driven by developments like a tendency among buyers to stick to delivery timelines have been the main reasons for the weakness.
Nirmal Bang said the mood of the brokers is looking pessimistic with no clarity on price rise, especially in the case of under-construction projects. “There is uncertainty over returns from the sector for the next two to three years,” the brokerage said.
Most realty brokerages suggest instead of buying an under-construction residential property, one should buy ready-for-possession assets. This will mean sales of under-construction residential property are likely to remain weak, and it will increase downward pressure on prices.
Shares of Indiabulls Real Estate, another major player from the NCR region, have risen 179 per cent on a year-to-date basis till October 23, 2017. The stock is up from Rs 75.80 on January 2 to Rs 211.30.
Delhi-based state-owned firm NBCC has seen its stock rise 50 percent on a year-to-date basis. Among others, shares of Ansal Buildwell, Ansal Properties, Vipul and Unitech have gained 27 percent, 38 percent, 49 percent and 49 percent, respectively.
Landmark Property Development Company has gained 1 percent, while Ansal Housing is down 2 percent for the year.
Buyer sentiment is down too. In an ongoing case, the Supreme Court was informed on October 23 that some 4,688 homebuyers in 63 residential projects of Unitech have sought refund of their money totalling Rs 1,865 crore, while 3,761 homebuyers have opted to take possession of their flats.
“I am not buying real estate stocks. We have heard of a couple of real estate companies that are in flux in terms of being able to service their debt and some cases where banks may have to take over,” Deepak Shenoy, Founder, Capital Mind, told ET Now in a chat.
Whenever the resolution process happens, banks or whoever the companies have borrowed from will sell those flats, and when these flats come to the market, prices will fall. This is going to happen over the next one year, said Shenoy.
Among players from other regions, shares of Mumbai-based Orbit Corporation and Pune-based D S Kulkarni Developers have tumbled over 50 percent this calendar.
Mumbai-based Oberoi Realty and Godrej Properties have advanced 50 percent and 112 percent YTD, while Bangalore-based Sobha Ltd has gained 105 percent.
Not only next one year but the next five to 10 years will be good for companies like Oberoi Realty, Godrej Properties and Sobha, stock picker Porinju Veliyath told ET Now in a chat.
“These are efficient and well managed developers and have a long way to go. However, there are challenges for lack of demand. But it is consolidation period for the real estate business. Investors should focus on smart developers with capability to execute. I am bullish on these three stocks,” he said.
Rahul Oberoi, Economic Times, Delhi/NCR