Developers in India still in ‘up-cycle’ for $23 billion fund
The real estate sector could be in an up-cycle in a year from now, and generally the up-cycle lasts for three to four years, says an expert
Mumbai: Property developers’ shares have beaten every industry group in India this year, drawing criticism from some analysts who say the gains are overdone.
V. Srivatsa, a fund manager at the $23 billion UTI Asset Management Co., sees it differently. There’s more juice left in real-estate stocks as steps taken by the government to aid the industry that was one of the worst hit by last year’s cash ban start to take hold.
“The sector could be in an up-cycle in a year from now, and generally the up-cycle lasts for three to four years, ” he said in an interview. “I would say the best is yet to come.”
The market opportunity for developers is huge, Srivatsa said, as the government’s push to bring homes to India’s 1.3 billion people sparks a boom that CLSA India Pvt. estimates could reach $1.3 trillion in the next seven years. Affordable housing is “one of the most straightforward bull stories in Asian equities,” the brokerage’s chief equity strategist Christopher Wood said in a note Friday.
Indian real estate, historically a conduit for unaccounted cash, was hit by the move to scrap high-value notes last November. The government broadened reforms this year to boost home buying under a plan launched in June 2015, which aims to build 50 million urban and rural homes by 2022.
Builders of affordable houses have been given tax breaks and access to institutional funding; interest-rate waivers and rebates have been extended to households with incomes up to Rs1.8 million and laws to protect home buyers were put in place on 1 May.
“The new regulator and focus on black money will significantly reduce competition as many unorganized players will go out,” Srivatsa said. The consolidation will ensure that the sector “is in favour for many years,” he said.
The gauge of property stocks has soared 91% this year, more than three times the gain in the S&P BSE Sensex. UTI Balanced Fund, run by Srivatsa, has almost doubled the weighting to the industry to 2.6% in the past year, data compiled by Bloomberg show. The fund held Mahindra Lifespace Developers Ltd, Phoenix Mills Ltd and Oberoi Realty Ltd at the of October. The stocks have risen at least 37% in the past year.
The S&P BSE India Realty Index added 0.1% in a fourth day of gains at 9:45 am in Mumbai, compared with the 0.2% drop in the Sensex. Real-estate stocks “can’t be a very big part of the portfolio but if you ask me purely about any recovery to be played, it will be this sector,” he said.
Srivatsa has also been buying software exporters and drugmakers, the once favourite growth stories in India. Bloomberg
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