Mumbai: Shares of real estate companies continue to rise despite weak sales of residential property, delays and bankruptcies, as investors take hope from consolidation and government initiatives.

So far this year, the BSE Realty Index has surged 13.95%, while the benchmark 30-share Sensex is up over 4%. The top performers in the property pack include leading developers such as Godrej Properties Ltd, Prestige Estates Projects Ltd and Oberoi Realty Ltd. The previous six sessions saw the Realty Index gain 9.44%, led by Sobha Ltd (19%).

So far this year, Godrej Properties is up 38.6%, Sunteck Realty 34%, Prestige Estates 34.7% and Oberoi Realty Ltd 26.9%. However, Indiabulls Real Estate Ltd fell 22%, Omaxe Ltd 9.4%, DLF Ltd 5.1% and Mahindra Lifespace Developers Ltd 5.6%.

Real estate stocks have soared because of recent measures announced by Union finance minister Nirmala Sitharaman, and consolidation due to regulatory reforms and an ongoing liquidity crunch, said analysts and real estate consultants.

“The industry has been expecting solutions relating to liquidity infusion and further financial incentive for homebuyers and developers. This has boosted investor sentiment," said Ramesh Nair, chairman and chief executive of JLL India, a property consulting firm. “Any measure that will help in capital infusion will help the sector grow."

(Graphic: Naveen Kumar Saini/Mint)
(Graphic: Naveen Kumar Saini/Mint)

According to data compiled by IIFL Research, listed developers posted a 20% growth in volume in the June quarter, while overall industry growth remained flat.

On 23 August, Sitharaman announced a capital infusion of 70,000 crore to recapitalize public sector banks, besides an additional liquidity support of 20,000 crore to housing finance companies. These steps are likely to give cash-strapped developers a reprieve, said analysts.

The minister has also hinted at a solution to fund projects stuck due to lack of finance.

“An indication from the government that it is working on easing liquidity issues and providing solutions for revival of stalled real estate projects has given hopes to investors," said Ajit Mishra, vice president (research) of Religare Broking Ltd.

Mishra said investors favour fundamentally sound stocks such as Godrej Properties and Oberoi Realty, which have made significant gains this year.

Abhimanyu Sofat, head of research at IIFL Securities, said homebuyers are increasingly opting for builders that have an ability to execute and deliver.

“As the sector consolidates, smaller builders are exiting the market, while a few big developers are the ones which are doing well in their respective local markets," he said. “Also, the National Housing Bank’s ban on subvention schemes has had little impact on large listed developers. So, it’s a combination of all these factors, which have led to the improvement in realty stocks."

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