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The real estate sector has been among the key casualties of the coronavirus pandemic. Industry experts say that the second wave has been far more damaging for the sector than the first one. In spite of this, the BSE Realty Index is showing no signs of stress and has already surpassed its pre-covid highs. At current levels, the index has rallied 82% in the past one year.

All the stocks in this index have hit new 52-week highs in this calendar year. Note that Maharashtra-based realty companies benefited from temporary stamp duty concessions in the state. Companies such as Godrej Properties Ltd, Oberoi Realty Ltd and Sunteck Realty Ltd, which are a part of this sector index, saw robust sales in the second half of FY21, pushing their stocks higher.

“Company-specific factors, including robust March-quarter earnings, have led to a rally in many real estate stocks. But in the current scenario, the outlook for the sector is not that bright. Even if demand were to improve, we don’t expect it to be significant enough to absorb the pile of unsold inventory across key markets. So, a rally in the sector index or real estate stocks is another example of how the stock market is disconnected from ground realities," said an analyst with a domestic broking house requesting anonymity.

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inventory pile-up

At least 98% of all developers are facing reduced customer enquiries, showed a survey by industry body the Confederation of Real Estate Developers’ Association of India (Credai). The survey revealed that the second wave has caused 95% of customers to postpone their purchase decisions. Rising cost of raw materials such as cement and steel in the backdrop of a pandemic has added to the woes of already cash-strapped firms.

The Credai survey pointed to financial constraints and liquidity problems, with 77% of the developers experiencing issues in servicing of existing loans and 85% of the developers facing disruptions in planned collections.

The situation is not very encouraging on the commercial property side as well.

“Leasing activity has begun to tame down. This is also validated by the fact that average vacancy levels in Grade A office space across the top seven cities is up again, breaching the 15% mark," said Prashant Thakur, director and head of research at Anarock Property Consultants. He further added that stringent restrictions in markets such as Mumbai and Bengaluru are a cause for concern, given they contribute the most to commercial demand.

“The magnitude of impact of this pandemic is unprecedented. Nevertheless, the major uptick in IT hiring and the continued strength of the financial markets in India will ensure that office uptake will find an even keel sooner rather than later," said Thakur.

While the outlook is robust for information technology (IT) and information technology enabled services (ITeS) industries, which make up the bulk of office demand, it remains to be seen if the positivity rubs off on office rentals.

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