Analysts not impressed, say rally is driven by liquidity
Real estate stocks, dumped by investors last year, have bounced back in 2012, amid a liquidity-fuelled rally in Indian stock market.
The BSE Realty Index, which tracks realty stocks, has gained 50 per cent since the beginning of this year. However, it has not impressed analysts and property consultants, who say nothing has changed on the ground for the rally to continue.
“It is more of sentiment than anything else. On the physical side, real estate prices have not fallen much in main cities in the last two years, but stocks were beaten down heavily. That is why they are recovering now,” said Ajay Parmar, co-head, investment banking, Emkay Global.
| REALTY ON YOUR MIND? BSE price in Rs | |||
| YTD 2011 | YTD 2012 | Feb 16,’12 | |
| HDIL | -38.33 | 124.77 | 119.80 |
| D B Realty | -51.38 | 92.32 | 95.10 |
| Anant Raj Ind | -29.59 | 90.06 | 75.55 |
| Prestige Estates Proj | -30.44 | 67.49 | 118.50 |
| Unitech | -52.19 | 63.99 | 31.65 |
| Sobha Developers | -13.89 | 45.80 | 279.50 |
| Parsvnath Developers | 7.85 | 43.18 | 62.50 |
| DLF | -14.56 | 36.27 | 249.45 |
| Oberoi Realty | 7.86 | 32.61 | 276.50 |
| Phoenix Mills | -5.26 | 27.59 | 210.90 |
| BSE Realty Index | -27.81 | 49.89 | 2061.90 |
| Data compiled by BS Research Bureau | |||
According to National Housing Bank Residex, which tracks home prices, prices had increased up to 38 per cent in metro cities during October to December 2011, over the corresponding period last year. However, BSE Realty Index had lost around 28 per cent in 2011, as property sales nose-dived, cost of borrowing went up for both developers and borrowers and economic growth declined.
Absorption of homes in the national capital region came down by 53 per cent in 2011, compared with the year-ago period. The Mumbai metropolitan region saw a 57 per cent decline during the same period, according to realty research firm PropEquity. “There is no reason for stocks to rise. Cost of borrowing of developers has gone up, launches have reduced and sales velocity has come down sharply. By the looks of it, I do not think things are going to revive any time soon,” says Amit Goenka, national director, capital transactions at Knight Frank, a global property consultant.
According to analysts, cost of borrowing of developers has gone up by two-three per cent in the last one-and-half years. “Even the Q3 earnings of realty companies were not good,” Goenka adds.
The net profit of DLF, the country’s largest property developer, fell 45 per cent in third quarter of FY12, while that of Unitech fell 50 per cent.
Says Rikesh Parikh, vice-president, equity strategies at Motilal Oswal Securities, “It is a liquidity driven rally. Since real estate developers need lot of funds, if interest rates come down, the rally will last long, otherwise not.”
The Reserve Bank of India (RBI) has left key policy rates unchanged in the last two policy announcements after increasing interest rates 13 times to tame inflation, which was hovering above nine per cent. RBI said rates have peaked and “further actions were likely to reverse cycle”.
However, many economists and analysts believe that the RBI is unlikely to go for any aggressive rate cuts, given the risk of inflation raising its hood again.
“RBI is likely to first see credible promise of fiscal consolidation and notable progress on (or at least prospects of) supply-side reforms before rate cuts are delivered,” said Leif Eskesen, chief economist, HSBC, India and ASEAN.
Property developers such as JC Sharma, managing director of Sobha Developers, say market has its own ways of interpreting the scenario than the way developers see it. “Whether Indian borrowers are hard pressed, we do not know. We cannot confront the markets. If markets see something as positive, we accept it, if it doesn’t, then also we accept it.”
