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Graphic: Santosh Sharma/Mint
Graphic: Santosh Sharma/Mint

Improved home sales by listed realty companies mask the overall gloom

  • Nifty realty index rallied by 2.2% on Monday, making it the highest intra-day among sectoral indices
  • The overall market sentiment for buying residential property remains weak

There is a whiff of optimism in the real estate sector. Firms, especially those in the listed domain, have lined up a slew of new launches to cash in on the festive mood. Big developers such as Oberoi Realty Ltd, Godrej Properties Ltd, Sobha Ltd and DLF Ltd have premium housing offerings with innovative schemes to lure buyers.

On the back of this optimism, the Nifty Realty index continued to move up on Tuesday, after a 2.2% rise on Monday that made it the highest intraday gainer among sectoral indices.

Monday’s 7% jump in DLF’s stock led the rally, after it clocked 700 crore by selling more than half the total units in Ultima Phase II, one of its premium housing projects. Likewise, Sobha’s stock rose by about 3% last week when it reported decent sales over the six-month period ended 30 September.

So, does this mean that the residential property market has turned the corner? No. There is still a lot of pain left in the sector. As per Anarock Property Consultants Pvt. Ltd, “55,080 units were sold across the top seven cities in September quarter, which is a decline of 20% quarter-on-quarter (qoq) and 17% lower than the year-ago period."

In fact, the strong sales jump witnessed from the March 2018 quarter till the March 2019 one did not sustain. The number of units sold across these seven cities gradually fell over the three quarters of calendar year 2019. This completely reversed the rising trend seen in 2018 (see chart).

Meanwhile, the slowdown bug seems to have bitten affordable housing too. “While the share of affordable housing has remained constant at 39% in the total housing market over the last year, the absolute sales of the segment contracted over the last two quarters," points out Anarock .

A combination of factors is responsible for the slippage. According to HDFC Securities Ltd, “Unorganised developers are finding it hard to get land and construction financing." The crisis in the NBFC (non-banking financial company) sector, with most recent non-performing assets and insolvency cases linked to real estate, has made lenders wary of the sector once again. Amrapali Group, Ansal Housing Ltd, Supertech Ltd, and Housing Development and Infrastructure Ltd are only a few names in the unending list of debt-ridden developers.

However, listed realty firms were quick to reform. According to ICICI Securities Ltd, while the overall market sentiment for buying residential property remains weak, “As per our channel checks, there is enough interest for new launches from leading, organised developers with a strong execution track record." But these realty firms comprise a minuscule 5% of the total home sales. Even the improving fundamentals of these firms in the listed universe, therefore, presents a deceptive picture of the residential property market, which is still battling high debt and stuck projects.

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