While GST is pushing consolidation in other sectors, it is happening faster in the real estate sector because of the implementation of another landmark reform, RERA. Organised players benefit naturally because GST and RERA make it difficult for smaller players to do regulatory arbitrage. While RERA is fully implemented in Maharashtra, it is facing teething troubles in other states. However, these problems are expected to get resolved in the coming years. “Once other states also implement RERA the way Maharashtra has done, there will be a sea change in sentiment towards real estate,” says Samantak Das, Executive Director and Head of Research, Real Estate Intelligence Services, JLL India.
A large number of listed real estate players makes the investment easier. “In addition to the large unorganised sector (around 90%), valuations of strong listed real estate players are also at reasonable levels now,” says Anil Sarin, CIO -Equities, Centrum Broking.
These two mid-cap stocks are highly recommended by analysts
Ideally, strong real estate players such as Godrej Properties and Mahindra Lifespace Developers should benefit from the expected consolidation. However, the stock market has already factored this in and therefore, the upside potential for these stocks is not much. However, mid cap companies like Brigade Enterprises are still quoting at reasonable valuations. In addition to strong real estate developers, companies like Capacite Infraprojects that are into construction of buildings will also benefit from the expected shift to the organised sector. With an order book close to 5.5 times its revenues, Capacite also has very clear revenue visibility.
“Their order book is now well balanced between private and govt clients now and this diversification lowers the risk premium,” say a recent HDFC Securities report.