Is this a good time to invest in real estate stocks?

[] Are you planning to invest in real estate stocks in 2017? While there have been several positive developments for the real estate sector of late, we examine some of the factors that investors should consider

People usually buy real estate stock, as they consider it to be a safe investment. They know that it is a key sector which goes through many temporary and cyclical phases. As per the ICRA’s estimates, the total housing credit outstanding in India as on March 31, 2016, was around Rs 12.5 trillion as against Rs 10.5 trillion on March 31, 2015, indicating a growth of 19% in FY16. Sales volume is one of the most important indicators, for investing in realty stocks. However, considering that there has been a slowdown in sales over the last 2-3 years, is this the right time to buy stocks?

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Recent policy decisions may boost confidence

Geetanjali Anand, director of Andy Home, points out that the real estate sector has witnessed a series of corrective measures and property investors had several reasons to cheer in 2016. “The government took several steps to bring down home prices, by making the housing market more transparent and cutting down delays in delivery. We are eyeing healthier market conditions in the near future. Consequently, demand and interest in the real estate market may improve, over the next 3-5 years, if remonetisation does not play spoilsport in the meantime,” points out Anand.

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Analysts maintain that the prevalent market trends indicate an impending price correction, a fall in home loan interest rates and better regulation and transparency in the realty sector. Additionally, the government’s focus on infrastructure and its smart cities initiative, will further boost the industry’s growth. Along with demonetisation and the Goods and Services Tax (GST), new policies like the Real Estate (Regulation and Development) Act, 2016, the Land Acquisition Rehabilitation and Resettlement (Amendment) Bill and the Benami Transactions Act, are all aimed at making the real estate sector more transparent and professional, adds Anand.

Monetary situation in the economy likely to benefit real estate

According to Dr Prodipta Sen, MRICS (UK) – expert, retail & real estate, the post-demonetisation period will be extremely favorable for home buyers or investors, to secure the best real estate bargains. “Demonetisation will clear out black money from the real estate sector and will bring price correction across all segments. This will enhance the availability of properties, for buyers and investors. Many savvy buyers or investors, who were sitting on the fence, will choose this period to invest in property, as developers will also try to boost their sales and clear-off their inventory,” Sen explains.

[] What promises greater returns: Realty or other asset classes?

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With the RBI gradually reducing repo rates and banks and NBFCs focusing on providing home loans at cheaper interest rates (owing to the excess cash from demonetisation), people are likely to seek more home loans (due to the cash crunch). Excess liquidity from demonetisation, also means that the government can channelise money towards infrastructure growth.

What should buyers of real estate stocks do?

Hence, the real estate sector is expected to witness progress, although it may be slow. However, this may well be good news for stock buyers, as they can invest when the share price is low, to reap maximum benefits in the future. While investing in real estate stocks, it is essential to adopt a long-term strategy. Besides the real estate market’s macro-economic indicators, investors should also examine the real estate company’s sales volume, reputation and expansion in different locations, before making any investment.

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Category: Lifestyle

Debora Berti

Università degli Studi di Firenze, IT

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