Realty stocks on sticky wicket amid high interest rates, controversies

August 21st, 2011 - 2:34 pm ICT by IANS  

Mumbai, Aug 21 (IANS) If you had put Rs.100 in the realty index of the Bombay Stock Exchange (BSE) a month ago, you investment today is down to Rs.75 and experts say the medium-term outlook for the industry also does not look bright due to a host of issues.

Among the 13 sector-specific indices, the drop in the realty index was the steepest. The index has fallen over 24 percent since July 18.

With the Reserve Bank of India hiking key interest rates 11 times since January 2010, the cost of borrowing has been on the rise with banks increasing lending rates up to 3.25 percent since July last year.

“The market sentiment would continue to remain weak on the real estate stocks in the coming quarters, as sales are down in the sector and interest rates are very high,” Teena Virmani, vice president with Kotak Securities, told IANS.

Following are some of the prominent realty stocks in terms of their weight in the index, with current prices, the quotes a month ago and the percentage gain/loss:

Name Price as on Aug 19 (Price a month ago) Percentage loss

DLF Rs.186.90 (Rs.77.15) 22.08

Untech Rs.216.55 (Rs.234.95) 25.32

Housing Development Rs.100.80 (Rs.234.95) 37.29
and Infra

IndiaBulls Real Estate Rs.79.05 (Rs.234.95) 35.15

Phoenix Rs.206.05 (Rs.234.95) 6.83

Godrej Rs.671.45 (Rs.234.95) 16.8

Sobha Developers Rs.220.30 (Rs.278.75) 20.74

Anant Raj Rs.57.10 (Rs.234.95) 34.1

Parsvnath Developers Rs.45 (Rs.49) 8.16

DB Realty Rs.64.80 (Rs.81.80) 20.88

The consistent and fast economic expansion in Asia’s third largest over the past few years has spurred the demand for homes for a growing middle class and fuelled the need for better roads and other infrastructure, benefiting real estate developers.

But real estate developers have had it tough in the past year or so. Some companies have faced trouble in land acquisition, as seen in the Greater Noida region.

Another recent concern is Competition Commission of India (CCI), levying a hefty Rs.630 crore fine of DLF for unfair practices. There are also indications that the watchdog could extend its scope of review to other developers as well to check for malpractices.

“The negative impact has already happened. Currently no such impact is seen in the stocks of other real estate firms, but if more developments in the case comes out then there will be a negative impact for sure,” Sharan Lillaney, research analyst (real estate), with Angel Broking told IANS.

According to Lillaney, the market is closing watching all the developments in the case that is evolving after CCI’s decision to fine DLF for Rs.630 crore for delaying housing projects.

“Yes there is nervousness and the investors are keeping a close watch on the developments,” he said adding that if more such cases appear than it would be hard for developers to raise funds.

That is not good news for a sector which is already hit by declining sales. A senior executive with a leading consulting firm, who is currently advising some prominent real estate developers too agrees that CCI’s move could have wider implications.

This will certainly have an impact on the market, which is already dampened due to high interest and low-inquiry rates coupled with the recent row on land acquisition,” said the executive, who did not wish to be identified.

“Mega impact may happen if another such judgement on a big sized company comes.”

(James Jose can be contacted at james.jose@ians.in or biz@ians.in. Rohit Vaid also contributed to this story.)

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