about 29 days ago
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It is kind of confusing – on one hand, the entire world is looking at the Evergrande crisis in China, calling it China’s ‘Lehman’ moment. Its ‘build, build, build’ mode of working plus the Chinese Govt’s newly introduced stiff regulations have put its entire realty sector on a ‘red alert’ mode.

And then on the other hand, this side of the Indian ocean, realty stocks, which were beaten down to pulp over the past few years have risen up like a phoenix from the ashes. Here, the sector is poised for a superlative growth as people are buying homes, all across India, thanks to the low interest rates - homebuyers can today get home loans for as low as 6.65% v/s 8% in January 2020. As against this, builders have not been able to hike up prices in tandem with the rise in demand.

Two days ago, Godrej Properties said that it achieved sales of Rs.575 crore in a single day at the launch of the second phase of its project Godrej Woods in Noida. It sold 340 homes with an area of more than half a million square feet on the first day of launch making this one of the most successful launches in India in recent times.

Motilal Oswal also put out report, which was a huge catalyst in the realty rally, saying that Mumbai is likely to see 7000 property registrations in Sept’21, breaking a 10-year record for the industry! Also, with Karnataka cutting stamp duty on low-cost flats, demand is expected to get a shot in the arm.

Godrej Properties, Oberoi Realty, DLF, Indiabulls Real Estate, Sobha have been major gainers over the past two days. But the big question is – is this rally in realty sector sustainable?

There are some worried that the Evergrande crisis will spill over into India as FIIs might prefer to stay away for some time till the dust settles. But then, the demand is driven by Indians – many of them genuine buyers and many of them investors who have no other avenues to park their funds. So, when the demand is driven internally, the crisis there will not have an impact here.

Also, people know that the rate cycle will reverse sooner than later and the various sops on account of the pandemic will also be withdrawn thus there is a rush to buy properties before the goodies get over.

One can say that to a large extent, this boost of demand in the realty sector is “interest rate” driven. Does this mean that when RBI hikes rates (unlikely this year), the sector will once again slump? Not likely as a rate hike will be gradual – 25 bps max. And that might not have such a huge impact on the home buyers. Also, by mid-2022, hopefully, the pandemic would be on the wane or gone, which will automatically boost demand and sentiments. Thus for the next 2-3 years, realty sector will be on an upturn.

It is a good time to buy realty stocks but more than realty, the ancillaries are a better bet – Asian Paints, Havells, Kajaria Ceramics, Cera Sanitaryware, Century Plyboards, Greenply, IFB, Voltas, Blue Star, Crompton Greaves Electricals, Pidilite, Polycab, Acrysil, ACC, Ultratech, Ambuja, HSIL and not to forget the home finance companies.

A revival in the real estate sector is good for the revival of the economy as it has a multiplier effect on growth, given its linkages to various industries - cement, steel, paints, furniture, electrical wires, wood, tiles, furnishings, copper, sanitary ware, etc. Get the gist?

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