Realty index outruns Nifty on GST 2.0 plan; time to buy real estate stocks?

Real estate stocks gained up to 4% today with Anant Raj, Prestige Estates, Sobha, Godrej Prop, DLF among top gainers. Nifty Realty index has outperformed Nifty50 since PM Modi announced GST reforms

Real estate stocks to buy: Real estate stocks were buzzing in trade on Thursday with individual stocks rising up to 4 per cent on the National Stock Exchange (NSE) in the intraday trade.

 

Anant Raj share price, for instance, rallied 3.9 per cent (₹559.85), while Prestige Estates Projects share price climbed 3.7 per cent (₹1,687). Share prices of Sobha, Godrej Properties, DLF, Oberoi Realty, Lodha, and The Phoenix Mills, meanwhile, gained between 1 per cent and 2.4 per cent intraday.

 

By comparison, the Nifty Realty index rose 1.8 per cent intraday and was up 0.8 per cent at 10:55 AM. The Nifty50 index, on the other hand, was trading 0.3 per cent higher around the same time.  READ STOCK MARKET LATEST UPDATES LIVE

Why are investors buying real estate stocks today?

Real estate stocks have been rising on the bourses ever since Prime Minister Narendra Modi announced during the 79th Independence Day speech that the goods and services tax (GST) structure will be simplified in the coming months.

 

Since August 15, the Nifty Realty index has risen 4 per cent on the NSE as against a 1.7-per cent rise in the Nifty50 index till August 20.

 

Addressing the nation from the ramparts of Red Fort, PM Modi said the government will bring “next-Gen GST reforms” by Diwali 2025, with an aim to rationalise the tax structure into a two-rate structure. According to the proposed plan, India will charge only two GST rates going ahead – 5 per cent and 18 per cent.

GST rate cut impact on real estate

 

The move, as per analysts, will lower the cost of various raw materials required by the sector as higher GST rates charged at present will be adjusted to lower categories.

 

Notably, cement and paints attracted 28 per cent each till now, and steel, tiles, and sanitaryware were levied an 18-per cent GST rate. With the government planning the removal of the 28-per cent tax rate, construction costs are set to come down, they believe.

 

According to a report by Anarock Group, construction costs jumped nearly 40 per cent between 2019 and 2024 in the affordable housing segment, affecting buyers’ purchasing power along with hitting profit margins of industry players.

 

“Tariffs on steel, aluminium, cement, equipment, and imported finishes from China, the US, and Europe could raise construction costs by 1.5–2.5 per cent at a 25 per cent duty and over 5 per cent at 50 per cent. Conversely, proposed GST cuts on cement and inputs may ease costs, reducing housing prices by 2–4 per cent,” the report said. READ MORE  ALSO READ | India Cements up 6%, hits new high as UltraTech to sell 6.49% stake via OFS

Real estate stocks: Investment strategy

According to analysts, the project launch pipeline for the rest of the financial year (FY26) remains strong which should help real estate players maintain the momentum in bookings. Amid market volatility, rate cuts and tax reforms should aid affordability and boost pre-sales.

 

The past couple of years have reported healthy demand from the luxury/premium segment while the affordable housing segment has lagged. Developers have responded to this by raising focus towards the luxury/premium segment. This, along with a price hike, has led to a steady improvement in sales realisations while volume growth has taken a backseat.

 

In the June quarter of FY26 (Q1FY26), sales volumes for the top-19 developers rose 9 per cent year-on-year (Y-o-Y), but down 9 per cent Q-o-Q, with average realisation rising 23 per cent Y-o-Y (down 4 per cent Q-o-Q).

 

That apart, project launches surged 105 per cent Y-o-Y for top-15 developers with pre-sales for top-21 listed developers growing 39 per cent Y-o-Y/10 per cent Q-o-Q to ₹49,500 crore during the quarter.

 

“Managements of real estate companies remained confident about a ramp-up in launches and pre-sales in FY26. On an average, management of various companies have guided for 18–20 per cent Y-o-Y growth in pre-sales for FY26 (top-14 developers),” noted analysts at Nuvama Institutional Equities.

 

According to the brokerage, developers intensified focus towards growth, utilising around 38 per cent of collections (and virtually the entire operating cash flows) towards land-related capex in Q1FY26 (compared with 35 per cent in FY25, 28 per cent in FY24, and 22 per cent in FY23).

 

“Given the significant financial firepower available with developers, we reckon business development shall remain robust going ahead. Prestige Estates and Brigade Enterprises -- each rated ‘Buy’ -- remain our top picks for the sector,” Nuvama said.

 

Sharing a similar view, those at Antique Stock Broking said strong housing demand continued in Q1FY26 with sales in many cases constrained by supply, not demand.

 

Factors like acceleration in market consolidation, significant new launches planned (collectively targeting over 20-35 per cent Y-o-Y growth in pre-sales), and strategic partnerships with an aim to expand into high potential micro markets bode well for multi-year growth for branded, organised developers with strong execution capabilities.

 

“The reported operational numbers and results in Q1FY26 suggest that real estate demand is still going strong. We expect Q2FY26 to be muted but H2FY26 would see an uptick in launches and sales. While we expect some moderation in absorption and price escalation, the right product would continue to see strong absorption. We remain positive on the sector and expect pre-sales guidance to hold firm in FY26,” the brokerage said. It remains bullish on Sobha and Aditya Birla Real Estate from a 2-3 years’ horizon.