Realty stocks wobble on fears of regulatory, legal risks
The Nifty Realty index tumbled 10.8% since Monday’s close as issues of accounting transparency and governance that brought many companies to book in the post-RERA (Real Estate Regulation and Development) Act, 2016, continue to haunt investors in realty stocks.Updated: Aug 23, 2019, 11:54 IST
Just when realty stocks were beginning to recover lost ground following a decent show in the June quarter, fresh woes have rocked the sector. The Nifty Realty index tumbled 10.8% since Monday’s close as non-disclosure of facts and income tax raids haunt market leaders.
On Tuesday, investors were stumped as Oberoi Realty Ltd, a leading real estate firm with strong brand equity in both residential and commercial property market, came under the Income Tax Department’s scanner. Both Oberoi Realty and one of its large vendors Capacite’ Infraprojects Ltd are currently being questioned on suspicious transactions between the two companies. Besides, there is allegedly a difference between the sale price of housing units reflected in its books and registered prices. While Oberoi Realty stock fell 11% in two trading sessions, opening even lower on Friday, Capacite Infra hit an all-time low after tumbling 28%.
Investors were in for a bigger shock on Thursday as DLF Ltd’s shares slumped 20% in the first hour of trade. This was following a Supreme Court notice based on a plea that the company had hidden key information from shareholders pertaining to pending cases regarding a Haryana land bank. Although some analysts dismissed this as hardly material to earnings, investors were peeved on grounds of failed governance and lack of transparency.
DLF’s management clarified that all disclosures and compliances have been adhered to. However, the event dented sentiment of investors who had regained faith after the company untangled its debt-ridden mess that shook its foundation for nearly a decade. In fact, even June quarter results showed an improvement in sales with the management retaining its guidance of moving towards zero debt in the near term.
To be sure, the last few weeks have been tumultuous for realty firms. Debt-laden Housing Development & Infrastructure Ltd (HDIL) hit an all-time low of ₹6.33 a piece, with a fall of 20% on Wednesday. The firm that was referred to the NCLT will face insolvency proceedings following a plea by one of its bankers which claimed that the real estate developer had failed to pay dues of ₹522 crore.
In short, issues of accounting transparency and governance that brought many companies to book in the post-RERA (Real Estate Regulation and Development) Act, 2016, continue to haunt investors in realty stocks.