Realty stocks continue to haunt investors

Fears of slowdown, delay in project execution and delivery and plunging profit margins continue to haunt investors who have put their money in realty stocks. According to real estate sector report by Religare Securities, there has been a noticeable decline in enquiry numbers for residential property over the past few months.

While terming all real estate investment as ‘high risk’, Religare has set lowered price targets for several realty stocks. DLF is currently trading 4.3% lower at Rs 288.75 (reduced price target: Rs 211), HDIL is down about 9% at Rs 132.70 (price target: Rs 142), Unitech is down over 13% at Rs 36.70 (reduced target price: Rs 34) while Orbit Corporation currently trades around 6% lower at Rs 60.15 (price target: Rs 85).

“Festival season has not sparked home buyer interest. As a result of the credit squeeze, most companies have withheld land acquisition or taking up further projects,” the Religare realty report said.

Another problem faced by developers is the need to delay existing projects as a result of low working capital. “Developers have already begun rescheduling their development plans and push back launch dates. This could enlarge the demand – supply mismatch in the longer run,” the report added.

Analysts expect demand to slump even further as recent rate cuts by RBI have not really rekindled buying interest. “In a slowing economy, when salaries remain stagnant with a downward bias, home buyers will not be keen to take up additional expenses by way of EMIs,” a Mumbai real estate consultant said.

Even if there is a price correction, it will take some time before demand actually pick up; analysts are expecting the lax trend to continue for the next 15 – 18 months.