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However, the realty index closed with a loss of 0.4 per cent at 1,731, primarily due to a four per cent fall in the shares of DLF.
Excluding DLF, which posted a nine per cent decline in consolidated net profit at Rs 132 crore for the quarter ended December, the 12 other companies in the realty index reported a 37 per cent year-on-year jump in aggregate net profit at Rs 628 crore during the quarter, data compiled by Business Standard Research show. These companies had recorded an aggregate profit of Rs 459 crore during the year-ago period.
Boosting the sentiment in the sector further was the Brihanmumbai Municipal Corporation (BMC)’s proposal to increase the floor space index (FSI, or the ratio of the built-up area to the plot area available) up to eight in the development control rules, to be applicable till 2034. Currently, the FSI allowed for the Mumbai island city is 1.33, while that for the suburbs is one.
“This is a step in the right direction. However, the infrastructure in the areas should be commensurate with the increase in the FSI. It will make the city more competitive; there will be more supply of offices and residential units. More supply is likely to translate into more reasonableness in prices,” said Anuj Puri, chairman and country head, JLL India.
“I think the problem of excess inventory is largely due to pricing, which needs to be more competitive. The only way by which we can become more competitive isn’t by squeezing developers’ margins; keeping land prices under check can help. One way of doing this is increasing the FSI to be built up. As a result, the new inventory created is likely to be more reasonably priced,” he added.
Stock strategy
Though realty stocks have seen a healthy run through the past few sessions, analysts say the sector isn’t out of the woods yet. While the proposal to increase the FSI in select areas in greater Mumbai in the backdrop of a possibly softer interest rate regime are key positives, realty companies are still saddled with a lot of unsold inventory. More, these stocks tend to gain ground ahead of the Union Budget, in anticipation of incentives.
Explains Jagannadham Thunuguntla, head of fundamental research at Karvy: “Real estate stocks are tactical trades, where there will be short-term interest around the presentation of the Union Budget, as expectations of possible tax exemptions and Reits (real estate investment trusts) are built in. Having said that, investors should remember these companies still have a lot of debt on their books. Once debt-related issues are structurally resolved, the stocks will become stable and stronger. For such an up-move to become a sustainable rally, a lot more repair work is needed.”
