Select real estate shares surge after RBI announces liquidity measures

Shares of real estate companies rallied up to 20 per cent on the BSE on Friday after the Reserve Bank of India (RBI) announced various liquidity measures for banks and non-banking finance companies (NBFCs).

In terms of the extant guidelines for banks, the date for commencement for commercial operations (DCCO) in respect of loans to commercial real estate projects delayed for reasons beyond the control of promoters can be extended by an additional one year, over and above the one-year extension permitted in normal course, without treating the same as restructuring.

The RBI said that loans given by NBFCs to real estate companies will also get similar benefit as given by scheduled commercial banks.

“It has now been decided to extend a similar treatment to loans given by NBFCs to commercial real estate. This will provide relief to NBFCs as well as the real estate sector,” RBI Governor Shaktikanta Das said in a statement, April 17, 2020.

Among individual stocks, Oberoi Realty, Kolte-Patil Developers, Ajmera Realty & Infra India and Puravankara rose 13 per cent to 20 per cent on the BSE intra-day. The stocks later came off the high point of the day, but were still outperforming the market.

Oberoi Realty has rallied 20 per cent to Rs 410 on the BSE in intra-day trade. The stock of the Mumbai-based real estate developer has soared 32 per cent in the past two trading days. It touched a multi-year low of Rs 291 on the BSE in intra-day trade on Monday, April 13, 2020.

At 12:43 pm, the S&P BSE Realty index, the top gainer among sectoral indices, was up 4.6 per cent as compared to 1.7 per cent rise in the S&P BSE Sensex. The real estate index rallied 6.5 per cent in intra-day trade.

According to sector experts, the measures taken for liquidity support to NBFCs, housing finance companies (HFCs) and microfinance institutions (MFIs) will meaningfully help the cause of the real estate sector.

“The move on reduction of reverse repo rate by 25 basis points shall push banks to open up the credit flow to economic activities. Similarly, allowing a 90 day extension for asset classification to loans that have been granted moratorium window is a critical step to assuage credit quality concern of lenders,” Shishir Baijal, Chairman & Managing Director, Knight Frank India on today’s RBI announcement.

Considering the lockdown and the impact on migrant labour workforce, there will be an inevitable delay in construction activity in real estate projects. Taking note of the situation, the central bank has provided one year project completion extension on asset classification for NBFC loans to CRE segment. Considering NBFCs have been very active in this segment, this announcement will ease the pressure of this segment too, Baijal said.