The real estate industry is currently grappling with significant market turmoil, a situation underscored by DLF’s stock closing beneath its original issue price for the first time. Specifically, the share price of India’s largest real estate developer dropped below the issue price of Rs 525 to settle at Rs 519.95 on June 6.
Over the past several trading sessions, the stock has consistently reached all-time lows but had thus far managed to hold its ground above the issue price. However, the final straw came when it crossed below this threshold. Notably, the BSE Realty index emerged as the second-largest loser, closing down 1.83%.
A mere one-third of real estate IPOs currently showcase positive trading figures, as the rest languish below their original prices. The exceptions include orbit Corporation, a luxury apartment developer which boasts an impressive 270% return, and Akruti City with a return of 50%.
In contrast, HDIL, known for slum rehabilitation, is trading considerably lower than its 52-week peak but manages to remain 30% above its issue price. Developers that have diversified their product offerings and own strategically located land banks appear more resilient amid the market pressures they face.
The specter of a correction in land prices heightens uncertainty among buyers regarding future price trends. Moreover, the tumultuous market conditions have severely impacted the inflated valuations that many companies had enjoyed previously. Brigade Enterprises, IVR Prime, Puravankara, Kolte Patil, and Omaxe are now trading at an average of 75% below their issue prices.
According to Ashutosh Limaye, Vice President (Consulting) at Jones Lang Laselle, “Inflation numbers breaching previous records, high volatility in the equity market have dented investor confidence in the sector. It is still 3-6 months before the real estate sector revives itself.”
In the same vein, Gopal Agrawal, Senior Fund Manager at Mirae Assets, observes, “With crude hovering at $130 a barrel and 10-year G-secs trading at 8.24%, interest rates are expected to harden further. This will have a negative bearing on the real estate sector.”