Consumers may have kept away from big-ticket items like real estate & cars in recent years. However, latent need is set to rebound in real estate in FY15, say experts. Expectations of a need revival & tax clarity on real estate investment trusts (Reits) are driving up realty stocks. Over the past six months, the BSE Realty Index has risen 44 %, while the Sensex rose 24 %.
Over the past 3 years, need for residential projects in key markets like Mumbai & Delhi has been weak. In fact, property registrations in Mumbai steadily contracted in 2014. In April, property registrations fell 10.5 % month-on-month and 20 % y-on-y. As a result, developers have not declared too many new projects &, instead, focused on completing existing projects. However, channel checks by analysts reveal enquiries have gone up after the election results. Need for real estate is cyclical & when demand returns, it is always strong and analysts expect demand for residential property to come back strongly before economic recovery.
Anticipating a pick-up in need, realty developers have already started increasing money for extension. Godrej Properties has announced a premium residential project in Gurgaon, while Ansal Properties is investing Rs 130 cr to develop a special economic zone in Greater Noida. Karvy Stock Broking expects new launches of 7 million sq ft from Oberoi Realty & 6 million sq ft from Kolte Patil, which would be sufficient to prop up the western India numbers. J P Morgan believes the earlier beneficiaries are likely to be those with important amounts of near-completion stock accessible, like Oberoi, Prestige & DLF.
Also, the over-supply in retail & commercial space is over. With rents stagnating, these developments have dried up & low fresh supply will push up rents, say experts. The Budget, too, could be a game-changer for the sector, if the much-needed clarity on taxation of REITs is declared. Experts believe if large pools of capital have to come into low-risk annuity-earning assets, then the issue of dual taxation has to be resolved.
JPMorgan believes exemption on dividend distribution tax will be key if these structures have to go via. If this happens, it will be positive for large commercial developers for example DLF & Prestige, which have assets they can pool & sell to investment companies.
EPC WORLD NEWS BUREAU
The post Real estate: Need to recovery in second half appeared first on EPC World.