The gloomy scenario of ghost towns with unsold home inventory, stuck housing projects and stranded homebuyers don’t seem to worry investors in realty shares. On the contrary, the Nifty Realty index has risen 21% in the past year, higher than the Nifty’s 13% return.

One of the reasons for this is that listed firms are faring better. According to Anarock Property Consultants Pvt. Ltd, in Q2 FY20, total home sales of eight listed firms rose 5% year-on-year (see chart), compared to 18% drop a year ago in overall home sales across seven top cities. In value terms, the share of these firms in total home sales has doubled to about 10% over a year.

Graphic by Sarvesh Kumar/Mint
Graphic by Sarvesh Kumar/Mint

“With a number of unlisted developers continuing to grapple with high debt, funding crunch and stalled projects, home buyers have also become more discerning over the last couple of years," said Adhidev Chattopadhyay, an analyst at ICICI Securities Ltd.

Besides, firms such as DLF Ltd, Godrej Properties Ltd and Oberoi Realty Ltd have lined up new projects or extensions of existing projects for launch, in the second half of FY20. Some such as Sobha Ltd are releasing existing inventory along with new launches, while Prestige Estates Projects Ltd is luring with assured completion schedules. This brings some cheer in a housing market that is still grappling with over 1,600 stuck projects with about 500,000 units.

Meanwhile, the quick compliance of listed firms with the new accounting and regulatory norms under the Real Estate (Regulation and Development) Act has also improved their credibility. Deleveraging efforts has lowered the average debt-equity ratio of stocks in the Nifty Realty index to 0.5 in Q2 from above 1 a few quarters ago.

That said, a shift towards lower-priced, affordable housing segment has reduced the average realization of sales. However, some listed firms have the advantage of diversifying into commercial property, which is on an uptrend for the last three years.

Investors would do well to keep a watch on sustained sales rise and pace of project completion. After all, under the new regulations, revenue from housing projects can be billed only after the unit is handed over to the customer.

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