Brick and mortar retail is slowly emerging from the shadow of virtual glory as stamp duty cuts and funding rates from leading lenders like HDFC, Kotak Mahindra and the State Bank of India fuel a rally in real estate stocks.
Godrej Properties, Oberoi, Puravankara and DLF were up more than 10% on Thursday, while the Nifty Realty index was up as much as 9%.
Karnataka cut its stamp duty earlier this week from 5% on properties under Rs 45 lakh to 3%. Motilal Oswal estimates that Mumbai will see 7,000 property registrations in September. The mortgage rates offered by most of the major lenders hover in the 6.5-7.0% range for 20-year home loans and are the lowest in history since 2005.
While it was initially expected that new residential properties would start from October 2021, coinciding with the start of the Christmas season, the waning of the second wave of Covid, record-low mortgage rates and strong new hires with salary growth in the IT / ITes sector prompted the developers to September to promote new housing projects.
“We expect real estate demand momentum to continue into the December quarter with the Dussehra and Diwali festivals and we expect developers to see record sales bookings in the second half of FY22, led by new launches,” said Adhidev Chattopadhyay, Analyst, ICICI Securities. “We anticipate the share of the overall Indian residential real estate market to increase from 25% in FY21 to 29% in FY24, and DLF, Oberoi Realty, Brigade Enterprises, Sunteck Realty and Mahindra Lifespaces are our top picks.”
On an aggregated basis, India’s ten largest publicly traded property developers have their consolidated net debt increased 37% to 27,400 billion 160 basis points between the quarters of March 2020 and June 2021, corporate overhead reductions of 20-40% from pre-Covid levels, operating cash surpluses, asset sales and Equity increases either through the qualified institutional placement channel or through dilution at SPV (Special Purpose Vehicle) level.
Godrej Properties shares rose 34% last week, while DLF and Sunteck Realty rose 17% and 11% respectively. The Indian real estate market is regaining the confidence of even global institutional investors and they see good opportunities in both equity and debt investments.
“The residential real estate sector is experiencing significant growth in all markets due to favorable government policies, 18 months of backlog, attractive pricing and the lowest mortgage costs ever,” said Sharad Agrawal, Executive Director – Capital Markets, Knight Frank India. “Investor interest in retail is also returning as space in most markets has fully reopened and people have started evaluating opportunities in the area again.”