The massive gains scored by the sector's index in last calendar year are a good indicator of the potential of real estate stocks. The Nifty Realty Index surged 110% in the calendar year 2017 (CY 2017) compared with around 28% increase in the Nifty.

The market size is expected to register at a compounded annual growth rate (CAGR) of 11.2 % to touch US$ 180 billion. Between the fiscal year ended March 2008 (FY 2008) and FY 2020. Retail, hospitality and commercial real estate segments are growing significantly, providing the much-needed infrastructure for India's growing needs, according to the FY 2018 annual report of Oberoi Realty. The housing sector alone contributes 5-6% to the country's gross domestic product (GDP).

Except for a brief period after demonetization, the Mumbai real estate market has shown signs of improvement and increase in off-take of inventory, notes Oberoi Realty.

A latest report by Knight Frank says that private equity (PE) investments in real estate recorded CAGR of 36% to Rs 59100 crore in FY 2014 to FY 2017. Much of the PE investments is into commercial real estate. PE investors invested Rs 33700 crore in the first half of CY 2018.

PE deals are transactions taking place directly between investors. These are not listed on a public exchange. Funding from PE ventures is effectively used to strengthen the businesses. PE firms are smart investors, adept at identifying trends in markets and economy much before the actual changes.

Even foreign institutional investors (FIIs) seem to be interested in local realty stocks. FIIs' asset under custody in the realty sector stood at Rs 26288 crore on 15 July 2018, up nearly 10% over year. Overseas investors have increased their holdings on an annual basis even as the Nifty Realty Index has given almost flat returns over the year.

Steel and Cement are crucial inputs for the consumption sector. Demand for these commodities gives a fair idea of the health of the user induatry. The domestic steel production index rose 4.4% in June 2018 over June, 2017. The cumulative index increased 2.9% between April and June 2018-19 over the corresponding period of previous year. Cement production growth has been even healthier. Domestic cement output index went up 13.2% in June 2018 over June 2017. The cumulative index gained 14.2% in April-June 2018-19 over the corresponding period of the previous year.

There is a visible change in housing prices, too. The National Housing Bank's Housing Price Index (HPI) indicated that its assessment price index went up 2.38% to 129 in March 2018 quarter over a year ago. In fact, the market price index for under-construction properties, preferred by the investors, surged 3.27% to a record high of 126. The index for under-construction properties recorded an overall increase in 39 cities, decrease in 10 cities and no change in one city end March 2018 over end March 2017.

Of the total of 50 cities, 26 showed an improvement in assessment prices over year in the March 2018 quarter. Just two cities witnessed a double-digit spurt, with Ranchi topping the list, following a near 22% jump. Surat comes in second, with an 11.20% increase. Both these cities have witnessed a sizable increase in prices in recent years, with around 28% gain over last four years.

Other cities recording growth in excess of 5% end March 2018 over end March 2017 are Vizag, Chakan, Ahmedabad, Patna, Pimpari Chinchwad, Rajkot and Bhuvaneshwar. Nashik and Vasai Virar showed an increase of just below 5%. The market in Gandhinagar also seems to be picking up, following a 3% increase after 12.70% decline in prices over the last four years. Panvel property rates seem to be hitting a plateau though, with a mere 1% increase on year in March 2018 after 22.80% jump over last four years.

Mumbai-based Oberoi Realty's net sales increased 13.60% to Rs 1265 crore in the TTM ended March 2018. The company said that due to the strong impetus on Mumbai's infrastructure and increase in disposable incomes, the city is sitting on latent demand waiting to be released. It completed 40 projects at strategic locations across Mumbai. It had a total of 19.86 million sq ft of spaces under construction end March 2018.

Indiabulls Real Estate's net sales jumped a massive 155% to Rs 5926 crore in the TTM ended March 2018 over the previous TTM. The company noted in its FY2018 earnings update that net bebt is expected to come down significantly in the current financial year, with collections from the Blu project, which is nearing occupation certificate, and further from sales of some noncore office and residential assets. The development portfolio stood at 28.9 million sq feet of under-construction properties with a sales value of Rs 32170 crore.

Delhi-based DLF pointed out in its FY 2018 earnings update that there was increasing interest in the residential business, especially in the luxury portfolio located in DLF 5, Gurugram. The market is expected to have bottomed out and a revival is on the cards in the medium term. It plans to continue to focus on the premium and luxury segment to garner healthy margins. In the last two quarters, net sales of approximately Rs 1000 crore were achieved.

Banglore-based Sobha's consolidated turnover went up 24.60% to Rs 2783 crore in FY2018. New sales volumes were 3.63 million sq ft valued at Rs 28.61 billion, with an average price realisation of Rs 7892 per sq ft end FY 2018.

Outlook

India's real estate sector had been locked up in a staggered state over the last few years, with the overall demand from end users taking a hit after the demonetization exercise in November 2016. The rollout of the goods and services tax on 2 July 2017 also hurt the domestic economy.

The real estate sector had to further bear the brunt of the Real Estate Regulation and Development Act (Rera), 2016. Rera provides compensating the buyers by the promoter due to delay in completion of the project. The promoter cannot accept a sum more than 10% of the apartment or plot cost as an advance payment or application fees. For any further collection towards the apartment or plot cost, the promoter is required to enter into an agreement for aale with the buyer.

Established and efficient property developers seem to be fairly well placed to deal with the intricacies of the law. Such developers might get more preference from buyers post Rera as awareness spreads about the Act and an all prevailing theme of formalization continues to sweep the economy.

For home buyers and investors, rising interest rates will also be a key factor precipitating their decisions. The Reserve Bank of India recently hiked interest rates by 25 basis points for the second time in more than four years.

Quarterly data suggest that the economy grew at 7.7% in Q4 of FY 2018, the fastest pace in the last seven quarters. The recovery in economy can lead to a sustained upside in real estate market. In fact, the increasing interest of PE funds in commercial property deals suggests that the economic undertone is supportive and residential property can hold on to its momentum in coming quarters.

The focus on infrastructure development by the Central government, rapid urbanization, a gradually improving economy and heavy rural focus in the current fiscal year's annual budget are tailwinds for the domestic real estate. Demand from the rural areas should pick up following the government guaranteeing minimum support price at 1.5 times the cost of production and a good monsoon. The tide seems to be turning for the sector.