One sector that has surprised by outpacing other stock market indices is real estate. After a sharp slump that dragged the BSE Realty index down 31% in 2018, the index has zoomed 14% so far in 2019. This makes it one of the best performing sectoral indices, and is far higher than the benchmark Sensex’s 7.9% rise and the BSE 500 index’s 5.7% gain.
The real estate sector is undergoing considerable change over the last few years. A few high-end developers have gained at the expense of smaller builders, because of the Real Estate (Regulation and Development) Act, 2016, (RERA). Business is now moving to companies with stronger balance sheets.
“RERA and the goods and services tax (GST) are driving new business to the regulated operators. Besides, the drop in these stocks has been severe in the past two years and some of the recent rise is essentially a retracement," says Param Desai, assistant vice-president at Elara Securities Ltd.
It also cannot be denied that the real estate market has improved a tad. Presales of some marquee real-estate projects have been robust. Recently, Godrej Properties Ltd sported excellent presales, raking in ₹2,100 crore, having sold 2,900 homes in the first quarter of FY19. Sobha Ltd also reported robust presales in FY19 of four million sq. ft, up from 3.6 million in FY18.
To top it, the recent success of DLF Ltd’s ₹3,200 crore qualified institutional placement, subscribed twice over, shows that investor interest in the sector continues to be reassuring.
Besides, analysts say that the recent successful listing of Embassy Office Parks REIT Ltd has drawn investor attention towards commercial property held by developers. Some developers have rental income coming from commercial property, which has been a saving grace (bit.ly/2IqSsVC).
One worry, of course, is the highly choppy nature of the sector. “Real estate is a high beta sector," says an analyst. “Hence, the recovery in this sector has been sharper."
High beta stocks tend to move faster than the broader market, and are also more volatile. So while the broader market may be fuelling this push, the downside can be crushing.
Hence, investors have to cast a discerning eye to distinguish the stronger players from the also-rans.