Sobha, Mahindra Lifespace become multibaggers in 2021 as analysts see strong upside in realty space

• Shares of some real estate developers like DLF, Sobha, Prestige Estate Projects have gained 13-33% in the last 30 days.
• Home loans segment is witnessing strong demand with lowest mortgage loan rates since 2005.
• Analysts believe the real estate sector is set for an upcycle with the coming festive season, low home loan rates, stable property prices and robust hiring by IT companies are expected to support housing demand.

Real estate company stocks are back in action with shares of such companies buzzing since the last few weeks. Analysts believe that the fact that we are heading into the festive season with low home loan rates, stable property prices and robust hiring by information technology (IT) companies are expected to support housing demand.

Shares of some real estate developers like DLF, Sobha, Prestige Estate Projects have gained 13-33% in the last 30 days.

Nifty Realty index has gained close to 5% in the last 30 days while BSE Realty index has gained over 7% during the period.

Analysts believe that the real estate residential segment is set for an upcycle.

“Heading into the festive season in India in H2 [second half] FY22, listed developers have lined up a number of launches across tier I cities. Low mortgage rates, stable property prices and robust hiring outlook for IT/ITeS [IT-enabled services] and financial services, especially in south India and continued work-from-home is expected to support residential housing demand,” said a report by ICICI Securities, dated September 4.

The report says DLF, Oberoi Realty, Brigade Enterprises, Sunteck Realty and Mahindra Lifespaces are some preferred stocks by the broking firm in the realty segment.

The report shows that the home loan rates offered by most large lenders range in the 7-7.5% range for 20-year housing loans and is the lowest ever since 2005.

The Indian real estate performance has been affected for many years owing to demonetisation, real estate regulatory authority (RERA)/goods and services tax (GST) implementation, NBFC funding crisis and the first and second waves of the COVID-19 pandemic in India. “However, heading into FY22 and beyond, we believe that the sector is set for an upcycle,” said analysts at ICICI Securities.

RERA came into action in 2017 to ensure transparency in the real estate segment thereby tightening rules, which made it difficult for developers to launch new projects without approvals. And in the last few years, non-banking financial companies have seen a liquidity crisis led by IL&FS group.

Gagan Banga, managing director of Indiabulls Housing Finance, in an interview with CNBC-TV18 said that they are seeing strong demand in home loans. “Mid-income group is showing a lot of demand, the best in 15 years,” he said.

“The Indian real estate sector is at a crossroads. After a gap of almost eight years, demand seems to be picking up in the residential segment aided by improved affordability, COVID-19 induced factors and government measures to boost housing absorption,” said a report by Edelweiss Securities.

Further, analysts feel the residential market will do well in the near future. Listed players have gained market share with new launches in the last 2-3 years and they expect it to continue.

Yash Gupta, equity research analyst at Angel Broking, says he expects the residential market to do well in the near future. Also, expect new hiring by [the] IT industry to increase residential demand in Bangalore, Pune and Chennai.

“We have seen a strong consolidation in the top 10 cities in India towards organised players post Demon [demonetisation], RERA, IL&FS crisis. Listed players have gained market share in new launches in the last 2-3 years, we expect this to continue,” he said.

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