Realty stocks had a strong run over the past year, buoyed by expectations of a revival. The CNX Realty Index has gained 45 per cent in the period, despite lacklustre performance by DLF, the largest company in the sector by market capitalisation.

While stock prices zoomed, the ground reality was far from comfortable. Buyer interest was tepid in most locations, even during the festival season. Data from real estate consultant CBRE shows that sales in seven leading cities fell 30 per cent in 2014 compared with the previous year.  

As prices stagnated in most locations, developers went slow with new launches. Instead, they focussed on completing the projects that were under construction, as completed properties tend to fetch higher prices. There was also a shift from high-margin luxury segment to mid-priced homes.

Slower revenue growth

As a result, revenues grew only 12 per cent during the first half of 2014-15 compared with the same period a year ago.

Many realty companies reported a drop in earnings; including Phoenix Mills and Puravankara, which reported revenue growth. Developers, already saddled with high debt, witnessed further increase in their leverage. There was, however, some revival in the Mumbai-market, which was hit hard the year before. Mumbai-based realtors such as Godrej Properties showed marked improvement in sales. In Mumbai, Pune and Bangalore, new project launches remain healthy.

Demand pick-up in the office space segment was better than in housing. This helped push the stocks of companies such as Brigade Properties and Prestige Estates Projects.

Developers are expecting incentives to develop smart cities and affordable housing to help revive demand. Likewise, measures to enhance infrastructure facilities could aid better prices.

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