Will worries about rate hikes dent realty stocks?

The real estate sector is back in the spotlight after housing sales registered strong growth in the July-September quarter of 2022.

According to ANAROCK data, the sales of residential properties across Delhi-NCR, Mumbai Metropolitan Region, Chennai, Kolkata, Bengaluru, Hyderabad and Pune rose 41 per cent year-on-year to 88,234 units.

New launches, too, climbed 45 per cent YoY to 93,490 units in these seven cities during the recently concluded quarter.

However, after the pandemic, the sector stands vulnerable to successive rate hikes. Against this backdrop, analysts believe that the upbeat housing demand would override rate hikes in the long-run.

Nishit Master, Portfolio Manager, Axis Securities says strong demand environment for realty. Steady inventory positive for new launches. Wage growth to offset rate hike turbulence. Bullish on Godrej Properties, DLF, Mahindra Lifestyle. 

Moreover, investors have turned positive on the sector in the second quarter of FY23 after relative underperformance in the previous quarter.

At the bourses, shares of Brigade Enterprises, DLF, Godrej Properties, Indiabulls Real Estate, Oberoi Realty, Prestige Estates, Phoenix Mills and Sobha have surged up to 28.3 per cent.

In comparison, the S&P BSE Sensex and Nifty50 have gained over 8 per cent each, in the July-September quarter.
 

That said, experts fear that incessant rate hikes would inflate costs of raw materials, which would elevate property prices and dampen demand. 

"This whammy of rising rates comes along with the inflationary trends of primary raw materials, including cement, steel, labour, etc, that have recently led to a rise in property prices. These factors will impact residential sales that did reasonably well in the first half of 2022," says Anuj Puri, Chairman, ANAROCK Group. 

Since the present interest rate continues to be at lower levels than 10 years ago, more rate hikes carry the potential to derail demand momentum, warn analysts.

Arun Chulani, Co-Founder, First Water Capital Fund says festive season to augur housing demand. Realty prices flat compared to last decade. Rate hikes still lower than 10 years ago. Rate hikes to dent home buyers sentiment.

As regards today, rupee movement, foreign flows and crude oil prices will guide domestic markets on Thursday. Globally, crude inventory report, US inflation and employment data will be closely tracked.