Real estate shares in focus; Prestige Estates, Oberoi Realty up over 5%

RBI has said banks and HFCs need to strengthen their screening process in respect of lending to the segment
Shares of real estate companies are in focus, with Nifty Realty index gaining 2% on Friday, on hopes that liquidity may ease in the coming days after the Reserve Bank of India (RBI) on Thursday relaxed rules for non-banking financial companies (NBFCs).

Prestige Estates Projects and Oberoi Realty were up 8% and 6%, respectively, on the National Stock Exchange (NSE). Indiabulls Real Estates, Godrej Properties, Sobha, Kolte-Patil Developers Brigade Enterprises and Sunteck Realty gained 1% to 4%.

At 12:05 pm; Nifty Realty index, the largest gainer among sectoral indices, was up 2%, as compared to a marginal 0.07% rise in the Nifty 50 index. Since September, the realty index had underperformed the market by falling 18% on liquidity concerns. On comparison, the benchmark index fell 7% till Thursday.

The RBI decided to relax the Minimum Holding Period (MHP) requirement for originating NBFCs, in respect of loans of original maturity above 5 years, to receipt of repayment of six monthly installments or two quarterly installments. This has been reduced from the earlier tenure of 12 months or four quarterly installments. These guidelines would be applicable to housing finance companies (HFCs) as well.

Commenting on the RBI’s move, Vibhor Mittal, Group Head (Structured Finance), ICRA said the relaxation in MHP criteria would primarily benefit HFCs and NBFCs offering mortgage loans where the loan tenure is typically more than five years.

According to a Business Standard report, the government will push harder on measures for providing liquidity in the financial system rather than changing governance norms of the RBI.

The official that the government’s argument – through Economic Affairs Secretary Subhash Garg and Financial Services Secretary Rajiv Kumar – will be on the liquidity stress in housing and consumer goods sector and how it is impacting further economic activity, added report. CLICK HERE TO READ FULL REPORT

Thus far in the calendar year 2018 (CY18), Nifty Realty index tanked 33%, against 3% gain in the Nifty 50 index. In CY17, the realty index zoomed 110%, as compared to 29% rise in the benchmark index.

Over the last few months, concerns have emerged on liquidity in the system, especially for NBFCs. Construction finance has been an essential component for real estate (RE) developers facing declining demand and lower cash flows. NBFC funding to developers posted a 35% CAGR over FY16-18.

“Over the last two years, various government initiatives and reforms such as demonetization, the introduction of RERA and implementation of GST have resulted in consolidation in the real estate industry. We believe the reputed players backed by strong execution track records stand to gain market share from small developers,” Karvy Stock Broking said in sector update.

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