Realty stocks tumble on RBI squeeze

MUMBAI: The rate-sensitive realty stocks, led by Indiabulls Real Estate, fell on Tuesday after the central bank tightened the provisions for housing loans.

Analysts said the decision to impose a ceiling on the loan-to-value ratio and the higher provisioning requirement for teaser rates will have an impact on the residential segment in the short term. However, the decision to control rising asset prices by arresting housing supply would be a failure in the long run as the demand will not be affected, they said.

“It came as a negative surprise and it seems that the RBI has singled out the realty sector,” said Raamdeo Agrawal, co-founder and director, MotilalOswal Financial Services. He said it was not expected that the RBI would take such strong measures. “Although this will have a softening effect in the short term, the long-term scenario remains positive for the real estate sector,” he said.

The BSE Realty Index fell 2.5% to close at 3643.97 while DLF and Unitech tumbled by more than3%to close at Rs 349.10 and Rs 86.25, respectively. DB Realty, Orbit Corporation, Sobha Developers and Parsvanath Developers were among the ones who fell between1% to 3%. The only stock in the realty sector to close in the green was HDIL, up 1.2% at Rs 257 during the close.

The RBI capped the loan-to-value ratio for housing loan exposure at 80%, increased the risk weight for residential housing loans worth Rs 75 lakh and more to 125%, and raised the standard asset provisioning by commercial banks for teaser home loans to 2% from 0.5%.

According to analysts, the increase in the risk weights for loans of more than Rs 75 lakh would only have a psychological impact on the real estate sector as most loans sanctioned have been within the revised limits. However, the increase in provisioning requirements for teaser rates will have an impact on banks that have offered such loans.

Going ahead, this move will have an impact on lending as banks will have to keep higher provisioning. “This move might have been done to prevent excessive leveraging amongst banks,” said Param Desai, real estate analyst, Angel Broking. He said that residential prices in certain pockets had shot up dramatically causing concerns that it may impact the net NPAs amongst banks funding it. Mr Desai said as the cost of loan for the end-user would go up, the prices could be kept under check.