REAL ESTATE THE MUCH AWAITED REVIVAL

After remaining in shambles for most of the last decade, real estate has come back with a vengeance in last one and half years.

The long lull in the property market seems to have ended with start of the pandemic. The NSE realty index is up by more than 215 per cent from the lows of March 2020. Even in last one year it is up by 24 per cent compared to 16 per cent by BSE 500 index. The momentum in the realty sector has surpassed many other indices. Nonetheless, if we take little, longer history, we see this index is still down by 67 per cent from its peak reached in 2008. Even the share price of companies that were trading in four digits in 2008 are trading in three-digit and many shares that were trading in three digits are trading in double-digit and some companies cease to exist now.

In the same period Nifty and Nifty midcap indices, these large and midcap indexes, have increased 3.5 times and 4.5 times respectively since the start of FY08.

Since the virus outbreak, real estate players have been hit hard across the value chain. Service providers were struggling to mitigate health risks for their employees and customers. Many developers were not able to obtain required permits and were facing construction delays, stoppages, and potentially shrinking rates of return. Meanwhile, many asset owners and operators faced drastically reduced operating income, and almost all were nervous about how many tenants will struggle to make their lease payments.

Nevertheless, it seemed to be transitory and COVID-19 stood out not as a big real estate disruptor and accelerated housing demand conversion. Some of the catalysts that fuelled this include stamp duty cuts, developer discounts, high attrition and resultant hikes, democratization of ESOPs to cover a broader employee spectrum, achievement of accelerated unicorn status, and stock market rally. All-time low mortgage rates and all-time high affordability have provided the supporting environment.