A good time to buy real estate and related stocks, say analysts
Given the accelerating economic recovery and attractive property prices, analysts say it is a good time for investors to invest money in real estate company stocks. Anyone who has free funds and would like to invest can also buy residential property in the long term. However, the return expectations of investors in these two asset classes are likely to be realistic, especially from a stock market perspective, as these counters have risen sharply since their March 2020 low.
For the past two years, residential properties have been mainly operated by end users. According to ANAROCK Property Consultants, investors only accounted for around 20 percent of the total purchasing activity. Over the years, the implementation of the Real Estate Act (regulation and development) implemented in 2016, combined with other shocks such as the demonstration, the introduction of GST and now Covid-19, has resulted in a consolidation in this sector.
“The prerequisites have been created for investors to become active again. However, the days of making quick and massive gains from real estate are over. Investors need to enter the market with more realistic return on investment (ROI) expectations. Short term speculative real estate investments are neither profitable nor profitable. Since real estate prices have remained tied to the range for the last 7 to 8 years, increasing demand will ultimately lead to prices getting harder again. A suitable investment horizon for Indian residential real estate is between 5 and 10 years, ”says Prashant Thakur, Director and Head of Research at ANAROCK Property Consultants.
Real estate prices have also risen gradually over the years. In India’s eight major metropolitan areas – the National Capital Region (NCR), Kolkata, the Mumbai Metropolitan Area (MMR), Pune, Hyderabad, Chennai and Bangalore – average property prices rose in the range of 2 to 38 percent between 2013 and 2020, ANAROCK shows -Data.
On the other hand, according to Knight Frank, sales of residential units in eight major Indian metropolitan areas reached a pre-Covid level of 61,593 units in December 2020 (Q4’CY20). On average, these cities had total sales of 61,467 units in 2019.
The government, for its part, has also been proactive. For example, Mumbai reduced the stamp tax rate for the period from September 1, 2020 to December 31, 2020 from 5 to 2 percent and by March 31, 2021 to 3 percent. Last week the Delhi government cut county rates by 20 percent percent for all categories of real estate for the next six months.
“In many areas, market rates had fallen below the district rates, which hampered transactions. Complications such as the difference between the lower market rate and the higher county rate added to the buyer’s income and taxed at the marginal tax rate were daunting. Lower transaction costs will certainly encourage buyers to look for opportunities, ”said Mudassir Zaidi, Executive Director (North) at Knight Frank India.
Most real estate stocks have performed exceptionally well on the stock exchanges since their lows in March 2020. The Nifty Realty Index outperformed the Nifty50 Index, up 100 percent, compared to a 91 percent increase in the Frontline Index. In terms of individual shares, Sobha, DLF, Godrej Properties, Brigade Enterprises and Indiabulls Real Estate have gained between 100 and 223 percent during this period.
With this in mind, analysts suggest that investors remain selective in real estate stocks and only buy where there is sales visibility and credible support from the promoter. “You can’t paint the entire sector with the same brush. Property stock returns have been phenomenal over the past few months. Investors need to be selective now, ”warns G Chokkalingam, Founder and Chief Investment Officer at Equinomics Research.
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