Liquidity squeeze hits realty scrips

Real estate stocks are seeing a downswing as they have lost up to 50 per cent market value from their recent peaks.

Leading the bear hug is Parsvnath Developers, which has lost 51 per cent from its recent peak of Rs 468 to Rs 229 on Wednesday. Unitech has shed 30 per cent from the recent peak of Rs 500 to Rs 347.

Sobha Developers shed 42 per cent from Rs 1,104 to Rs 630, Akruti Nirman lost 35 per cent from Rs 564 to Rs 363 and Ansal Properties and Infrastructure shed nearly 50 per cent from Rs 974 to Rs 479.

Industry watchers hint at various reasons for the downfall, from the squeeze on liquidity to commercial real estate, rise in interest rates and subseqent fall in demand and the not-so-favourable Budget proposals.

The move to impose service tax on lease rentals, selective hike in the excise duty on cement prices and non-extension of section 80IA, which gave tax concession to realty firms, also had negative impact on realty stocks.

"In the pre-Budget period, the interest rate hike and the anticipation of lesser demand from property buyers pulled down these stocks. It was expected that the number of buyers who avail of loans and buy properties will come down. The move to impose service tax on lease rentals and the expectant hike in the commercial rentals also impacted realty stocks negatively," says Suman Memani, senior analyst, Emkay Securities.

Another reason cited for the crash was expectations of major correction in the property prices in smaller cities where most of the listed realty firms have their operations.

"In the short term, the sentiment that there could be correction in the property market in tier-II and tier-III cities led to the downfall in these stocks. Whenever the interest rates have gone up, presuming the slide in demand the market has factored it immediately," says Ashutosh Narkar, senior analyst, India Infoline.

Rajen Shah, chief investment officer, Angel Broking, believes that the stocks, which were quoting at very high levels, have now come down to saner levels.