The S&P BSE Realty index hit its all-time high in trade on Monday with stocks rising up to over 70 per cent in the last three months. The sharp upsurge on the counter has took many investors by surprise, with some wondering whether it is time to book profits, however, if market analysts are to be believed there is still some steam left on the counter and these stocks may well climb up to 20 per cent in 3-4 months timeframe.
The government's decision to relax the foreign direct investment (FDI) norms in the real estate sector last month is also expected to play a critical role in reviving the sentiment on the real estate sector.
Experts said realty stocks are witnessing value-buying among host of other triggers such as seventh pay commission hikes, hopes of resumption of rate cut cycle with the appointment of new governor, the rise in confidence of home buyers after the passage of Real Estate Regulator Bill, easing of Real Estate Investment Trusts (REITs) regulations, and realtors' steps to shed debt by liquidating assets, that are making the sector look attractive.
Data showed that many real estate stocks such as Oberoi Realty and DLF have hit their 52-week highs this month.
Shares of Indiabulls Real Estate have in fact surged 73 per cent in the past three months. It has been followed by HDIL (up 44 per cent), DLF (up 38 per cent), and Unitech (up 29 per cent).
The real estate sector has suffered a lot of pain in the past several years due to growing inflationary costs and slowdown in the economy. But experts believe a gradual recovery is underway.
Now that an institutional infrastructure is in place in the form of the Real Estate (Regulation and Development) Bill, 2016, these are hopes that the confidence of home buyers will get a boost and their interests will be protected.
Last month, the market regulator Sebi allowed 20 per cent investment in under-construction projects (up from 10 per cent earlier) to make REITs more attractive to investors and real estate players.
REITs allow developers to pool in money from investors by selling completed buildings and issue units in exchange as a trust, just like mutual funds. It was launched in 2014, but no REIT listing has happened till date.
"Easing of REIT norms will increase flow of capital in the industry, which is experiencing a cash crunch. It will make REIT a viable product for investors and a fund-raising instrument for real estate players. The decision will also attract small investors to become a part of the real estate growth story," said an IIFL report.