In September, foreign institutional investors, have been consistently selling in the Indian market. The figures up to September 25th indicate that foreign investors have sold more than 11,000 crore rupees worth of investments. This is a contrast to the previous six months, during which they had been buying consistently.
However, in September, foreign investors are increasing their investments in real estate companies instead of selling or booking profits. According to the data from the National Securities Depository Limited website as of September 15th, investments by FPIs in the real estate sector companies have surged to 81,577 crore rupees. This investment figure in the real estate sector by foreign investors has reached its highest level in 2023. Now the question is, why are FPIs finding real estate sector so attractive and should you also invest in them? The Reserve Bank of India (RBI) has increased the repo rate six times from May 2022 to February 2023. Due to these successive hikes, the repo rate in India currently stands at 6.5%, making a home loan considerably expensive. This especially affects those looking to buy affordable homes. Not only has the high loan interest rate made buying affordable homes more costly, but it has also had an impact on the sales of such properties, as buyers of affordable housing are highly sensitive to interest rates.
So, why are foreign investors buying these shares? Even though the sales of affordable homes have decreased, the premium and luxury segments of the real estate market have not been affected by the high interest rates.
According to a recent real estate consumer sentiment survey conducted by Anarock Property Consultants, the demand for mid and premium properties with prices above 45 lakh rupees has remained significantly higher than usual in the top 7 cities in India in the first 6 months of 2023.
Companies listed in India’s major stock exchanges have benefited from these trends. These companies have a more significant presence in the premium and luxury segments compared to affordable homes. From April 1, 2023, to September 25, 2023, real estate sector companies have delivered returns ranging from 24% to 74%. Out of the top 10 companies, 6 have provided returns exceeding 50%, surpassing the 47.2% return of the Nifty Realty Index, even though the Realty Index has delivered more than three times the return of the Nifty.
Now, the big question is whether one should consider buying real estate shares after the purchases by foreign investors and strong performance. Ravi Singh, an expert in the stock market, believes, “Due to the surge in prices, property is not fitting into the common public’s budget. This has led to increased demand for low-value properties and rental income. Investors from metro cities in the country have heavily invested in real estate. However, now is the time to reduce exposure to real estate. If you are making a 50% profit on your investment, it’s advisable to switch to sectors like cement and infrastructure. From an investment perspective, DLF and Godrej Properties are the preferred choices in this sector, but consider investing in them only if there is a 10-15% dip in their prices.”
So, overall even though FPIs are increasing their investment in real estate retail investors should wait for at least 1-2 quarters before taking a position. Until interest rates decline its better to be in wait-and-watch mode.
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