5 signs that this beaten-down sector may emerge the hottest one in 2021

5 signs that this beaten-down sector may emerge the hottest one in 2021

NEW DELHI: If early signs are anything to go by, real estate is one sector that is going to be the hottest theme of Calendar 2021. In fact, it may also give a new lease of life to some other sectors that depend on it.

Macro data and early numbers reported by the real estate companies suggest a recovery is on the cards. Encouraged by lower property prices, cheaper loans and encouragement from the government authorities, demand has picked up.

Will the trend continue? Going by the signals the market is sending out and management commentaries, the answer is affirmative.

Here are five signs that a realty revival is around the corner:

1. Property cycle bottoms: Due to low demand and a number of fundamental issues, residential builders have not been able to raise property prices in the recent years. In fact, they had to cut down on their margins. Analysts said affordability of housing is at its lowest, and hence the best, level in two decades, and the numbers resemble the bottom of the previous property cycle in 2003-04.

“Unsold inventory is down 20 per cent from the peak and as sales accelerate, inventory would start hitting rates and lift price levels by the end of 2021. We estimate that a potential upturn in housing can positively impact the broader GDP growth by 1-1.5 ppts every year over the next five years, eventually driving the long-awaited capex cycle,” said Mahesh Nandurkar and Abhinav Sinha, analysts at Jefferies.

2. Sales at record level: Some real estate companies say they are seeing very good recovery in sales in the recent months. Sobha, a builder operating in South India, said it saw a record sales in the past quarter. The demand recovery has been boosted by cheaper loans and festive demand, analysts said. But some problems still persist.

“Demand is recovering in some pockets on a low base, but industry-wide absorption and supply would remain subdued and cash flow issues may worsen. Developers with strong brands and low leverage such as Godrej Properties and healthy office portfolios such as DLF are best placed to survive the turmoil,” said Parvez Qazi and Akash Damani of Edelweiss Securities.

3. Government push: The governments at the Centre and states have been pushing to revitalise the sector. Stamp duty cuts by some states, rationalisation of risk in home loans by RBI and the Maharashtra government’s latest decision to cut levies on developers by a half are some of the steps that are having a positive impact. “The Maharashtra government’s step is in the right direction. We are confident, like stamp duty reduction resulted in higher collection, this move too is likely to help the state get higher revenue collection. [The premium] amounts to almost 25-35 per cent of project cost for the developers,” said Krish Raveshia, CEO at Azlo Realty, a Mumbai-based builder.

4. Rally in realty stocks: It is widely believed that stock market builds in near-term industry/stock outlook in the price. Going by the returns given by most of the stocks from the sector, the prospects look encouraging. It should be noted that the sector has been one of the underperformers in the recent years.

As many as 47 stocks have risen more than 100 per cent from their 52-week lows (mostly hit during March-May 2020). Some of the biggest wealth creators have been DB Realty, Sobha, BL Kashyap, Ansal Properties, Godrej Properties, Brigade Properties and Sunteck Realty, which have surged 150-400 per cent.

Analysts also have lofty targets for some of them. Yes Securities has projected Sobha to rise 35 per cent more from current levels. Sandip Sabharwal, an independent market analyst, is bullish in DLF.

“There is a general belief that prices are starting to move up, and given the low interest rates, it is better to buy now if you want. I expect this revival cycle to continue. We own DLF and think that it is a significantly under-owned stock given the fact that it is India’s largest real estate company with the repaired balance sheet. It should have reasonable upside over the next one or two years,” he said.

5. Cement prices rise: It is not just the builders who have being seeing an uptick in sales, allied industries have also seen positive impact of the recovery in construction activity and new project launches. In the recent months, cement and steel makers have raised prices. So much so that Union Minister Nitin Gadkari alleged cartelisation in the industry. Last month, CCI initiated investigation against ACC and Ambuja Cement over alleged anti-competitive behaviour.

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