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Realty stocks under pressure despite RBI relief analysts stay on the fence  |  February 12, 2020

Nishant Kumar

Realty stocks fared poorly on February 10 as their sectoral index lost over a percent on the BSE and extended their losing run into the third consecutive session.


The index has been in negative since the day the Reserve Bank of India (RBI) offered relief to the sector in its sixth bi-monthly MPC meet outcome on February 6.


The index has, however, seen some value buying at lower levels on February 11.


RBI extended loans given for restructuring of projects by 12 months, without downgrading the asset classification.


This is for projects that were delayed for reasons beyond the control of realtors and comes as a major relief to the real estate sector. Experts hailed the move and said this measure was not limited to commercial real estate but will benefit residential projects that were delayed on account of regulatory issues also.


Unfortunately, realty is a sector that has a few positives but a lot of challenges to deal with.


The biggest challenges that the sector is facing include low demand, unfinished projects, a slowdown in the economy and lingering weakness in NBFCs. GST and RERA, too have hit the sector to some extent, experts point out.


The new tax regime, proposed by the government in Budget 2020, is also a negative for the sector as it does away the exemption on income tax earlier availed on housing loans. Even though the new tax regime is an optional one, the government has subtly indicated that the country will gradually move to this scheme in the coming years.


However, some brokerage believes while there are fears about these measures impacting housing demand, homebuyers and developers are likely to adjust their expectations over the medium term.


"While there may be some short disruption until clarity on the tax issue emerges, we believe that over time, both developers and customers will adjust their pricing expectations to factor in any negative impact of these measures," ICICI Securities said in a report.


Amid all this, the RBI's measure came as a relief.


"The announcement is a definite positive and progressive stand taken by the RBI in the current policy and positive as well for the sector. It will help release Rs 10,000 crore on account of this incentive," said Vinay Pandit, Head - Institutional Equities at IndianNivesh Securities.


Amit Gupta, Co-Founder & CEO, TradingBells, is of the view that the RBI offered a big booster for the real estate sector in terms of extension of date of commencement of commercial operations of project loans for commercial real estate, delayed for reasons beyond the control of promoters, by another one year without downgrading the asset classification.


"The relief for the real estate sector will be helpful for stocks like DLF, Oberoi Realty, Godrej Properties, Prestige and Sobha," Gupta said.


Brokerage firm ICICI Securities has a buy recommendation on DLF, Phoenix Mills, Brigade Enterprises and Sunteck Realty.


The RBI's move will have a long-term impact even if it is not showing any immediate impact on the sectoral stocks.


"Whenever the government announces a measure for any sector, it takes time to be completely effective. There is a difference between the expectations and turning the wheel naturally. Any measure taken by the government and its agencies will take time to show their impact," said Sameer Kalra, Founder, Target Investing.


The general demand for the realty sector has been tepid but the bigger challenge is the perpetually falling investor demand. As long as investor demand picks up, the sector will have to wait to see a turnaround.


"It is not that the houses are not being sold. The issue is with the investor sentiment. Investors are picking only players. As long as the investor demand does not pick up, things will not change for the sector. Investor demand will pick up when the pricing comes back in the system," Kalra said.