Firms with under-construction properties dive as rate cut still month-and-a-half away
On a day when the BSE Sensex erased all year-to-date losses, a big Goods and Services Tax cut failed to enthuse the real estate stocks.
The GST Council on Sunday reduced GST rate for the affordable housing segment from 8% to 1%, while for the under-construction properties the rate has been cut from 12% to 5% without the input tax credit. The new rate cut will be applicable from April 1, 2019.
Despite the cut, real estate stocks continued to fall. After rising for five consecutive days, the BSE Realty Index closed at 1802.11, slipping 15.67 points, or 0.86%. On NSE, the sectoral index slipped by 0.73% ending at 231.45.
Oberoi Realty (-3.17%), Sun Teck (-2.18%), Prestige Estate (-1.35%), Indiabulls Real Estate (-1.34%) and DLF (-0.71%) were the top losing realty stocks on NSE.
Unitech Ltd (3.85%), Godrej Properties (0.99%) and Brigade Enterprises (0.38%) were the gainers.
"With lower GST rate now, we expect fence-sitters to show interest in buying under-construction property and spur demand," Motilal Oswal said in a report on Monday. "Under the current situation and state of real estate market, we believe it will be difficult for developers to pass on the increased cost which shall be absorbed into the margins. We expect a negative impact of approximately 3-5% reduction in margins," the report said. Among the listed developers, Prestige Estates has the highest value of under construction projects while DLF has the lowest inventory under construction.
During the opening bell, the BSE Realty index rose 2.58%, while the NSE Realty gauge opened 2.42% higher.
"The date for these new rates are applicable from April 1 and property deals could take a halt for next one-and-a-half months, which could lead to lower quarterly numbers. So there are chances for slow growth and a rise in inventory as new buyers will wait for a new financial year to get the GST benefit," said Chandan Taparia, derivatives and technical analyst at Motilal Oswal Financial Securities. This may have led to the nervousness among investors on Monday, he said.
Year-to-date, BSE Realty has lost 35.38 points, or 1.93%, while on a year-on-year basis the sector has tumbled around 28.39%, or 714.49 points. On NSE, the gauge has lost 6.05 points, or 2.55%, year-to-date.
"This is a welcome move on the part of the government. It will certainly give a fillip to the housing finance sector. The full impact of these benefits will only play out when the government initiates concrete steps to address both – supply as well as the cost of liquidity of HFCs. The recapitalisation of banks, enhancement of sectoral caps, portfolio purchase windows at an affordable price for HFCs is the need of the hour for real estate revival," said Manish Jaiswal, CEO at Magma Housing Finance.
Sensex closed at 36213.38 rising 341.90 points, or 0.95%, on Monday while Nifty50 advanced by 88.45 points, or 0.82%, ending at 10880.10.
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Oberoi Realty (-3.17%), Sun Teck (-2.18%), Prestige Estate (-1.35%), Indiabulls Real Estate (-1.34%) and DLF (-0.71%) were the top losing realty stocks on NSE.
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