 "Labourers work at the construction site of a commercial complex in New Delhi")
BSE realty index has been one of the biggest losers, shedding 20 per cent of its value in two weeks. This is on continued slowdown, worsened by regulatory uncertainty and note ban. Analysts say all this, coupled with expectation of more regulatory action (on benami or nameless property) will pressure a sector already reeling from muted demand and high prices.
While this means muted outlook, JPMorgan believes organised players will benefit going ahead, given the price parity with smaller players and the move towards consolidation, already playing out in Mumbai, Bengaluru, and Delhi. The Street is betting on companies with a significant share of commercial real estate.
Adhidhev Chattopadhyay of Elara Capital says Prestige Estates Projects, Brigade, and Phoenix Mills, which get a large chunk of their revenues from commercial real estate, are insulated against recent developments, to an extent. While 50 per cent of Prestige's valuations are attributed to rental assets, 70 per cent of Brigade's valuations are due to its rental and hotel assets, while Phoenix Mills gets its entire revenue from commercial assets. Given the recent fall in stock price, Elara Securities says Phoenix Mills offers attractive entry at current valuations. "While recent black (unaccounted) money crackdown may cause hiccups, Phoenix remains relatively insulated as it is largely rental-based, with leading properties."
Pure residential players are vulnerable, say analysts. Among Bengaluru-based companies, Sobha has residential sales mostly and could be under pressure given slowdown and regulatory uncertainty. In fact, Sobha has missed its sales forecast for three years in a row (FY14-16) while Prestige missed sales forecast for its residential segment in FY16 on slowdown in core markets and sluggish pickup in bookings.
Even among companies that own malls and hotels, there could be some pressure on demand for a quarter due to note ban, but things should improve as spending picks up again. Residential segment could also come under pressure. JM Financial's Abhishek Anand says Oberoi, Godrej, Prestige, and Sobha have no unaccounted component in transactions, so demand would remain as it is for them, but pricing could be impacted as any cut by Tier-II and Tier-III developers (worst affected by note ban) would impact all players.
Analysts say uncertainty could last for over a year as states pass regulatory Bills. However, any fall in prices, and reduction in borrowing rates (which will bring down repayment costs for both consumers and companies) will be positives. Given the record of the sector, wait for sales recovery.
