Saturday, August 20, 2016

Photo: Dun & Bradstreet
The real estate regulatory law seeks to establish the Real Estate Regulatory Authority for regulation and promotion of the sector. It will ensure sale of plot, flats or building or project in an efficient and transparent manner as well as protect the interest of consumers.

Though the real estate sector is beset with many perennial problems, like sluggish demand, liquidity crunch, regulatory pressure and customer activism, the big players like DLF Ltd (Rs.167.70), Unitech Ltd (Rs.5.17), Oberoi Realty Ltd (Rs.297.80) etc are adopting bold and innovative strategies to tide over such issues; during the lean season.

The effective implementation of innovative initiatives such as Make in India, Start Up India, Housing for All, Smart Cities, Digital India and REITs will have a powerful positive impact on the growth of the real estate sector in the coming months. 

Recently, there were media reports that the real estate and construction sector in India is likely to be the third largest globally by 2030, contributing over 15% to Indian GDP and emerging as the largest employer in India providing employment opportunities to over 75 million people.

A background paper by KPMG in India and the National Real Estate Development Council (NAREDCO) highlights that India's urban population is forecast to increase by about 40% from 420 million in 2015 to over 580 million by 2030. The government has launched several large programmes (such as Smart Cities, Housing for All, AMRUT, HRIDAY etc.) along with policy support (Real Estate Act, REITs, GST etc.) to accommodate such a vast population. According to the paper, nearly 110 million houses would be required by 2022 alone in urban as well as rural India to provide housing to all citizens. This includes the current shortage of over 60 million houses, out of which around 20 million exist in urban areas. As per the paper, there are a number of solid infrastructure projects in the pipeline. These include 432 projects worth Rs 6.5 trillion for roads, more than 400 projects worth Rs 6 trillion in railways, 70 projects worth Rs 670 billion for the development of airports and 75 projects worth Rs 551 billion for ports.

Most analysts believe that Real Estate (Regulation & Development) Act, 2016, will ensure transparency, complete disclosures and clarity to buyers of real estate products. This is expected to weed out smaller, me-too players of the sector, bringing down the competition. 

Moreover, the rental business is expected to continue strengthening in prime cities; for quality office spaces, group housing residential complexes and IT/SEZs. In this context it is pertinent to mention here that DLF Ltd, Unitech Ltd, Oberoi Realty Ltd, Ahluwalia Contracts Ltd (Rs.301.65), etc are coming  up with some world-class housing as well as innovative and technologically advanced urban infrastructure; in future.

Reliance Securities has given a Buy Call on Ahluwalia Contracts (India) Ltd. with a target price of Rs.345. Time period given by the analyst is Medium Term.

With improvement in the economic scenario in FY16, the construction sector is seeing huge investments from GoI and private players. Overall, the domestic real estate/construction industry is poised to grow exponentially, backed by massive infrastructure building programmes initiated by GoI. Increased GoI focus on infrastructural development such as construction of roads and bridges and power projects is a major growth driver for this industry. In addition, mounting demand from increase in population will drive the need for increased capacity in housing, transport and utilities sectors.

The analysts feel that the real impact of latest FDI liberalisation measures on foreign investments in Indian real estate will be reflected over a period of time.  100% FDI under automatic route in completed projects for operation and management of townships, malls/shopping complexes and business centres is a significant step taken by the Government. Also, Quick implementation of the Real Estate Regulatory Bill (RERA) will support the realty market to attract FDI. Sources say, that the Government of India is considering a reduced lock-in-period applicable for FDI investments from 3 years currently to 1-2 years to further enhance investor interests. 

Unitech Ltd is passing through a bad phase due to wrong approach towards certain crucial matters, since the time they decided to venture into an unrelated business segment, wireless. Besides, this their employment of two lawyers having Congress (INC) Background, is also foolhardy. Not only that, the arguments of the two reputed layers, having strong political connections was pedestrian (as was reported in the media) during the last two Supreme Court hearings. The company needs to employ layers, who are close to the ruling dispensation and at same time not too costly - - because this will add up to the legal expenses of the company depleting shareholders' wealth. Also, their habit of going to court at the fall of a hat is not proper, when issues such as consumer activism is concerned. 

Having said, this I am expecting the share price of Unitech Ltd (Rs.5.17) to touch Rs.9-10, within the next 60 days, as the construction work commences, post monsoon and festival season kicks in from next month....
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