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March 31, 2017  |  ETMarkets.com
Property prices down 5-7%, but realty stocks should take off on RERA, GST

Financial year 2016-17 turned out to be a miraculous one for the beaten-down real estate sector, as the benchmark BSE Realty index is set to end the year with best returns in seven years. Market watchers say rising affordability as well as game-changing policies such as RERA and GST will augur well for the sector in the days ahead.

The BSE Realty index surged over 25 per cent during the financial year ending March 31, 2017, rising from 1,228 on April 1, 2016 to 1,574 as of March 29, whereas BSE Sensex gained 16.5 per cent in the same period.

Financial year BSE Realty index Sensex
FY08 41.21 25.60
FY09 -79.34 -37.94
FY10 109.73 80.54
FY11
-28.61 10.94
FY12 -23.94 -10.95
FY13 0.15 8.78
FY14 -17.51 18.85
FY15 13.36 24.89
FY16 -26.20 -9.36
FY17 28.17 16.53
    #Till March 29

“We are seeing some green shoots after the demonetisation and the real estate developers across the country are shifting gears and getting into mass housing,” Sanjaya Gupta, MD, PNB Housing Finance said in an interview with ETNow.

Omkar Tanksale, Fundamental Analyst, GEPL Capital, sees further upside in real estate stocks in the long run. “GST will be a boon for the sector,” he said.

All the components of the BSE Realty index are going to end the financial year in the green with Delta Corp surging nearly 170 per cent till March 29, Oberoi Realty 55 per cent, Indiabulls Real Estate 43 per cent, Sobha 31 per cent, Godrej Properties 28 per cent, Phoenix Mills 26 per cent, Unitech 10 per cent and HDIL 6.36 per cent.

Chandan Taparia, AVP for Derivatives and Technicals, Motilal Oswal, expects real estate stocks to continue good performance in the short to medium term.

However, credit rating agency India Ratings and Research is cautious on the sector and believes falling sales have dimmed hopes for the cash-strapped real estate developers as options dry up for refinancing their debt obligations in FY18.

Market experts believe the goods and services tax (GST) will benefit the sector in the coming quarters. The GST regime moved a step closer to becoming reality from July 1 after the Lok Sabha approved four supplementary legislations.

While GST was not fundamentally designed with the real estate sector in mind, the sector will gain a lot from it, said Sachin Sandhir, Global Managing Director - Emerging Business, RICS.

“It will subsume all other taxes and contribute to normalising the tax incidence on the same goods or services across states, removing taxation on interstate movements. It is likely that the warehousing and logistics sector will stand to gain, since placement of possibly larger warehousing and logistics hubs will depend almost entirely on transportation and connectivity, as opposed to being influenced by incidence of intestate taxation,” he pointed out.

Industry watchers say the Modi government’s policies would support the real estate sector in making it more transparent.

JLL India said tax breaks and other sops would help builders cut cost, improve bottom lines and get additional liquidity to improve efficiency. These steps, along with other impending regulatory breakthroughs such as RERA and GST will not only fuel demand, but make the sector more efficient and organised. RERA is expected to rollout from May 1.

“RERA will be a gamechanger for the real estate market. REITs again was a game changer. For a home buyers, one can definitely ask for 5-7 per cent discount from developer,” Ramesh Nair, COO for Business, JLL India, told ETNow in an interview.

“Things are turning better for real estate sector. Inflation is at an all-time low with improving affordability,” Nair said.