Realty stocks start buzzing as credit disbursement picks up

BSE Realty Index returns 11% in a month as bank credit rises 19.6% and some players successfully launch projects

Like several other beaten-down sectors, real estate stocks, too, have been buzzing in recent times. Over the past month, the BSE Realty Index has returned 11 per cent, while the BSE Sensex has risen four per cent.

The biggest reason why this sector has come back into focus is the return of liquidity. Banks have started lending to the sector after a long time. Credit disbursement to the sector has risen 19.6 per cent, compared to last year, with 21 per cent increase in disbursement to real estate companies and 19 per cent increase in mortgages. As a percentage of total bank credit, disbursement to the sector had fallen to 10 per cent in January, which is now beginning to pick up. Analysts believe this is a good sign.

Over the past few months, demand for real estate has seen a sharp fall and companies have announced significantly fewer projects. In fact, new launches of some of the key listed players declined to three million sq feet in the second quarter of FY14, from the 10 million sq feet they announced in the first quarter. The total absorption also fell to 70 million sq ft in Q2, from 95 million sq ft in Q1. Goldman Sachs believes investors’ focus will remain on execution, given the uncertainty over demand.

Other analysts believe demand could stage a comeback in FY15, as enquiries are picking up. While demand in southern markets have been largely intact, Karvy Stock Broking sees initial signs of pick-up, as inquiries have started building traction, with the return of fence sitters. Also, they believe the recent success of launches like Kalpataru Sunrise, Thane & Lodha Rise, Dombivili suggests there is latent demand. With the regulator coming out with its final guidelines on real estate trusts, the demand for real estate would pick up in coming months. The announcement of policy on cluster development in Maharashtra would give a fillip to the real estate market in Mumbai and its suburbs. While remaining cautious on companies with high debt, the view on the sector is beginning to turn.