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Realty stocks are under significant selling pressure amid the broader market sell-off. Over the past month, the Nifty Realty Index has declined sharply by approximately 20%, with a single-day drop of 4.56% on Wednesday.
Several real estate stocks are now trading at substantial discounts compared to their 52-week highs. For example, DLF shares are down 26% from their 52-week highs, while Godrej Properties has dropped 34%. Similarly, Macrotech Developers and Prestige Estates have declined 29% and 36%, respectively, from their 52-week highs.
The decline in the realty index has been much steeper than the corrections in India’s broader equity market benchmarks, the NSE Nifty50 and BSE Sensex, which have fallen 11-12% from their 52-week highs.
This sharp correction in realty stocks follows a period of strong performance, where the sector delivered some of the best returns in the local equity market. Experts attribute the current weakness to several factors, including a slowdown in housing sales. Data from PropEquity indicates that in 2024, the residential real estate market in India’s top nine cities experienced a 9% decline in sales, with 4,70,899 units sold, while new supply fell by 15% to 4,11,022 units.
“Nifty Realty Index delivered the second best two-year return of 45% after the Defence Index which delivered 65% two-year return. So what we are witnessing is a correction from the peak. Most of the sectors which delivered superior returns have seen corrections,” said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Diminishing chances of aggressive interest rate cut by the US Federal Reserve and subsequently by the RBI has turned investors cautious. The housing sector, being sensitive to interest rates, comes under pressure when central banks keep key lending rates at higher levels for a prolonged period.
Anand K. Rathi, Co-Founder of MIRA Money said that over the past three to four years, real estate stocks have generated significant returns for investors, so a course correction, along with the broader market correction, is to be expected.
“Additionally, several states have ongoing issues with the Real Estate (Regulation and Development) Act (RERA). Delays in project approvals and applications are causing problems, which could lead to fewer project launches. This has also contributed to the sector’s downturn.
Development activity in the third quarter (Q3) is typically subdued, especially following the festive season. As a result, Q3 is generally not considered the best time for real estate transactions,” said Rathi.
Vijayakumar said that the upcoming Union Budget is likely to give a boost to affordable housing and stocks in this segment may benefit from that.
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