Apart from taming inflation, the interest rate hike has brought down the stock prices of real estate firms in the last six months.

Stock prices of the realty majors have gone down as much as 55 per cent in the last six months due to rise in interest rates and following slump in residential property demand.

Leading the bear hug is Ansal Buildwell. The scrip has gone down 56.27 per cent from Rs 178.35 on January 2 to Rs 78 on June 29, the last day of trading in June. Lok Housing's scrip lost 47.28 per cent from Rs 292.85 to Rs 154.40 in the last six months.

Ansal Properties lost 40.89 per cent from Rs 451.97 to Rs 267.14, Mahindra Gesco lost 36.75 per cent, Parsvanath Developers lost 27.12 per cent and Peninsula Land has shed 20.01 per cent in the last six months.

After interest rate hike, residential property demand has gone down significantly. Residential demand is more influenced by interest rate fluctuation than commercial demand.

Following the anti-inflation measures adopted by the Reserve Bank of India (RBI), the interest rates have gone up by more than 200 basis points in the last six months. Banks have tightened their norms for home lending and commercial real estate.

According to estimates by a national property consultant, residential property demand has gone down by 10-12 per cent among first home buyers and 20-25 per cent among the investors.

Says K D Mehru, vice-president (equity research), Khandwala Securities, "Developers are spending major chunk of their capex on buying land. This has mainly swelled the property prices and led to excessive valuation. Following a series of interest rate hikes, the demand has gone down. Smaller realty firms are also caught in a liquidity crunch. All these factors have hit the sector." Mehru said the realty stocks might not put a good show in near term as adverse situation continues.

However, he opined that big realty firms have not felt a major setback. "Big players have economies of scale. Firms such as DLF, Unitech have already garnered huge land banks and have enough cash. They can sustain this situation. So, investors are not taking long-term positions on smaller stocks, which are losing out," he said.

Even mutual funds have reduced their exposure to the sector in the last six months.

-Business Standard
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