Realty majors plummet on rate hike fears: 

A disaster waiting to happen!!

Do you remember my article, some weeks back??!!

 

HDIL worst performer with 42% decline.

Chennai, May 24: Shares of realty firms were the major underperformers in 2010. The fall has been aggravated in the last 15-20 days, despite companies announcing improved financial performance in the recent quarter.

The market does not appear to be taking note of the improved results and balance sheet, according to an analyst tracking the realty sector.

The BSE realty index tumbled 23 per cent in 2010 as against the Sensex's fall of 5 per cent. Stocks such as DLF, Ackruti, Anant Raj Industries, HDIL, Indiabulls Real Estate, Orbit Corp, Parsvanath and Peninsular Land have dropped between 11 per cent and 42 per cent.

HDIL was the worst performer in 2010, as the stock plummeted 42 per cent to close at Rs 208.6 from Rs 360.65 (December 31, 2009, close price).

“Commercial real estate market across the country continued to show a downward trend over the past few quarters as most of the eight major cities recorded negative growth in rental values. Most micro-markets across the country witnessed 15-25 per cent decline in rentals in 2009 compared to 2008. The vacancy levels continue to remain high at 15-20 per cent with most IT/ITeS destinations contributing to high vacancy levels,” said KR Choksey's latest report.

The analyst tracking the realty sector said: “Fears over the sustainability of real estate revival on the back of an impending hike in interest rate appear to have resulted in real estate stocks once again being beaten by the market.”

Residential demand, which has seen a pick up in the last few quarters, may come under pressure if home loan rates go up significantly. The recent increase in property prices in some markets has also dampened sentiments in realty stocks due to fears of poor sales, said the analyst.

“Besides this, RBI's caution in the recent monetary policy on a possible asset price build-up in emerging economies may also have dampened sentiments,” she noted.

However, the stock of Sobha Developers remained impressive at the bourse. It posted a return of 19 per cent in 2010.

Optimistic about future:

“While the company has been unable to achieve its targeted land sales for FY-10 (Rs 250 crore), the turnaround in its real estate business will arm the company with adequate operating cash flows to fuel its growth further as well as help in de-leveraging the balance sheet,” said Enam report.

However, analysts remain positive about the prospects of the sector.

“With the gradual economic recovery, we believe the demand for office space is likely to increase by the second half of 2010. With several large and mid-sized US corporates firming up plans to outsource their work to India, the outlook seems positive for the employment market and the commercial real estate segment. Markets across India are expected to improve,” added the KR Choksey's report.

Also, according to a Credit Suisse Research report, “Real estate inventory levels at 7-14 months of sales in March 2010 are now at a three-year low and have nearly halved from the peak levels of 18-30 months in 2Q-09. New launches have been slow, as developers have been waiting to exhaust the existing inventory before kick-starting a new launch cycle. However, the recent pick-up in volumes, consequent improvement in working capital cycle and low inventory levels should encourage developers to accelerate new launches. This should assuage investor concerns about volume growth built into management guidance and analyst forecasts.”