India's low property stocks could be short-lived, analysts say

Global - - Recent volatility in India's low property stocks could be short-lived as record low interest rates and an economic recovery from the pandemic fuel demand from an increasingly affluent middle class will affect the markets.

That s the view of market watchers, who see large listed companies emerging as the biggest beneficiaries amid an ongoing consolidation in the $200 billion sector. While the S&P BSE Realty Index slid 3.1% in August, it surged as much as 6.2% on Wednesday, the most in seven months. The 10 gauge is now up 32% this year and on track to a sixth straight quarterly gain - - longest run in Bloomberg-compiled data going back to 2007.

The growth and scale in the sector will come from the middle class, said Motilal Oswal real estate, headquartered in Mumbai with a capital of 46 billion rupees $630 million. Consumers prefer vast developers who are well capitalized and well perceived. India s property market has rebounded after six years of a down cycle as a series of headwinds ranging from pandemic, bad-loan crisis and surprise cash ban hurt demand for new houses and apartments.

Stronger sales and weak launches are leading to faster absorption of outstanding inventory and this favorable demand-supply situation has started to build a case for price increases, according to Murtuza Arsiwalla, director of research at Kotak Institutional Equities.

Despite the recent run-up, the Indian real estate sector stacks favorably when compared with China, U.S. and some key South Asian peers. In India, the $38 billion capitalization of listed property stocks in India is a fraction of China, Hong Kong and the United States and trails even the larger Asian markets.

Presently contributing 6% to the GDP of countries, the real-estate sector is expected to exceed $1 trillion by 2030.

Nitin Chanduka and Marvin M Chen, analysts. Arsiwalla likes Indian firms such as Prestige Estates Projects Ltd. and Sobha Ltd. in an Aug. 30 note. Mumbai-based Macrotech Developers Ltd. - whose shares have almost doubled since their April debut -, and Oberoi Realty Ltd. offer value at current prices, he added.