Real Estate Bill Triggers Buying in Realty Stocks

The Cabinet's approval to the revised Real Estate (Regulation and Development) Bill, 2015 led to a rally in real estate stocks on Thursday. Analysts said the passage of the Bill, which covers both residential and commercial real estate, could lead to a re-rating of the domestic real estate sector.

The realty sub-index on the Bombay Stock Exchange outperformed the broader markets, rising over 1 per cent as compared to flat trade in Sensex and Nifty.

Orbit Corp and Unitech were the big gainers, rising 3-4 per cent. HDIL, Anant Raj, NBCC and Sobha Developers advanced 1-2 per cent. DLF, India's biggest realty firm, rose 1 per cent.

According to IndiaNivesh Securities, the Real Estate Bill will boost consumer confidence and help the realty industry attract foreign direct investment.

Developers will have to register projects (with complete details) with a real estate regulatory authority (RERA) once the Bill is passed. This will lead to standardisation of the unorganised real estate market, analysts say. The provision of fines on buyers for defaulting on payment will also benefit developers, analysts said.

Niranjan Hiranandani, chairman and managing director of Mumbai-based Hiranandani Group, told NDTV that transparency is the biggest benefit of this Bill.

"Approvals, passing of plans, carpet area, built-up area -- all these information will be available to consumer. Nothing would be hidden, that is the principle aspect of the Bill," he added.

The increase in deposit for project construction money in escrow account to 70 per cent from 50 per cent is likely to weigh on developers, analysts say.

According to Mr Hiranandani, the provision of higher deposit in escrow account will increase troubles for real estate companies already bogged down by unsold inventories and sluggish demand.

IndiaNivesh Securities said the new stringent penalties shall be a negative for the developers not doing clean businesses and benefit companies like Oberoi Realty, Nesco and Ashiana Housing which already practice clean businesses.