Why investors have no love for property stocks? Realty worst performer; Indiabulls Real Estate down 12%, DLF, Godrej too in list

Although, the benchmark Sensex was trading on cautious note today, it was the real estate stocks that witnessed a bloodbath. The S&P BSE Realty was trading at 1,792.25 down by 48.81 points or 2.65% at around 1228 hours. Almost every stock was trading negative. The BSE Realty index is down 29% since January 2018 end market peak, underperforming the BSE Mid Cap index by 17 percentage points and the Small Cap index by 11 percentage points since then.  

On the losers list today, it was Indiabulls Real Estate stock that took the lead, tumbling by 12% with intraday low of Rs 99.35 per piece. It did manage to recover some losses, as currently it was trading at Rs 104.10 per piece down by Rs 8.80 or 7.79%. 

This decline in Indiabulls emerged despite the company proposing to issue Secured, Redeemable, Non-Convertible Debentures of face value Rs 10 lakh each aggregating Rs 25 crore, on a private placement basis, pursuant to a special resolution passed by the shareholders of the Company at its 11th Annual General Meeting held on September 29, 2017. 

Indiabulls was not alone, other major stocks in losers list were - HDIL at Rs 21.85 per piece down 5%, DLF at Rs 173.55 per piece down 4.80%, Sunteck Realty at Rs 406 per piece down 4.26%, Mahindra Lifespace Developers at Rs 443.50 per piece down 2.81%, Sobha at Rs 409.50 per piece down 2.71%, Godrej Properties at Rs 590.65 per piece down 2.34% and Phoenix Ltd at Rs 557 per piece down 2.24%. 

Oberoi Realty was gradually below 0.31% trading at Rs 417.45 per piece. 

It was only Prestige Estate that saw positive reaction from investors, as the stock price was trading at Rs 227 per piece above 3.65%. 

According to CLSA, property stocks are down about 30% YTD as concerns on higher interest rates, accounting changes and, lately, liquidity issues of lenders have had an impact on sentiment. The weak performance comes even as real estate sales have started to pick-up after a prolonged slump. 

CLSA added, “We note that the property sector had anyway been facing tighter liquidity post-RERA, and further liquidity tightening will only improve market shares of the leading developers. The sharp correction, meanwhile, implies that stocks with ‘visible value’ such as Oberoi Realty and Prestige Estates are already offering good buying opportunities.”

Talking about Prestige and Oberoi, CLSA said, “Given ongoing market uncertainty, we also identify Oberoi Realty and Prestige Estates as two stocks where the visible value is high as compared to the current stock price.”

Furthermore, despite Godrej Properties being on negative note, CLSA is optimistic on the company compared to other stocks. The rating agency said, “We continue to believe in our thesis of property market improvement and consolidation and thus stay positive on the sector with Godrej Properties our top pick.”