Nifty Realty has gained nearly 30 percent in the last 5 years. However, the index has fallen over 3 percent in the last 1 year and gained 13 percent in 2019.
The real estate sector has been in focus in the past 5 years with Narendra Modi government introducing a number of reforms for the sector. During its first term, the Modi government had introduced major reforms such as Real Estate (Regulation and Development) Act, Goods and Services Tax (GST), Insolvency and Bankruptcy Code and Benami Transactions (Prohibition) Act, in order to support the real estate sector struggling with dwindling sales, high inventory and price stagnation.
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The GST council has also done away with the input tax credit (ITC) and reduced the GST rate for under-construction flats to five percent from 12 percent and for affordable housing to one percent from eight percent, from April 1, for all new projects. Although it is a welcome move for the home buyers, it is hitting the margins of the developers.
The Nifty Realty index has gained nearly 30 percent in the last 5 years. However, the index has fallen over 3 percent in the last 1 year and gained 13 percent in 2019 so far. In comparison the Nifty50 index has surged 37 percent in 5 years, fallen 4 percent in 1 year and advanced 1.5 percent in 2019.
In the Nifty Realty index, eight of the 10 constituents gave positive returns in the last 5 years, while only 2 were in the red. Godrej Properties, Sunteck Realty, Brigade Enterprises, and Oberoi Realty gained over 100 percent during this period, while Sobha, Indiabulls Realestate, Prestige Estate, and Phoenix Mills rose between 13-90 percent.
The losers included Mahindra Lifespace and DLF, which fell around 25 percent and 11 percent, respectively.
Godrej Properties rose the most, up over 300 percent in the last 5 years. Its net profit rose from Rs 97.65 crore in FY14 to Rs 130 crore in FY19.
Despite a decline in its revenues, Godrej Properties reported a nearly two-fold increase in consolidated net profit in Q1 at Rs 89.87 crore mainly on the back of a decline in total expenses. The company had reported a net profit of Rs 34.25 crore in the corresponding quarter last fiscal.
Sunteck Realty, was second on the list, up around 200 percent. The company saw a 22 percent rise in net profit, from Rs 150.96 crore in FY14 to Rs 184.55 crore in FY19.
However, going forward, the sector is worried that the NBFC crisis, if not dealt with soon, will impact its recovery. The industry hopes, the government will help the sector in raising funds from other sources by relaxing norms.
"Indian real estate needs to be made more attractive to foreign investors and the budget is an ideal platform to announce further incentives that will attract more foreign investments into Indian real estate," says Anuj Puri, Chairman - ANAROCK Property Consultants.
The outlook for Indian real estate fell to a 21-month low in the quarter to June, indicating a significant decline in optimism regarding the performance of the sector in the next six months, found a survey jointly conducted by industry lobby Ficci, National Real Estate Development Council (Naredco) and real estate services firm, Knight Frank.
“Indian real estate stakeholders have downgraded the current period outlook for the ongoing six months to ‘pessimistic’, indicating no improvement in the level of on-ground activities for the sector,” said the survey.
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