No news is good news. This is exactly the case with Indian real estate stocks Tuesday.
India’s central bank raised its key lending and borrowing rates by 0.25 percentage point each but kept away from tweaking the bank lending rules for real estate companies.
The move, or rather, the lack of one, cheered investors.
The 14-stock Bombay Stock Exchange Realty Index ended 3.1% higher, significantly outshining the 0.3% rise seen in the benchmark 30-stock Sensex.
Shares of DLF, the nation’s largest real estate company by sales, jumped 3.2% to 326.35 rupees while those of smaller rival Unitech climbed 4.6% to 83.50 rupees.
This is in sharp contrast to the battering real estate stocks received in October last year when the RBI, in a bid to cool the property market, asked banks to raise loan loss provisions for advances to commercial real estate borrowers to 1% from 0.40%.
“Property prices have risen sharply in India over the past six months,” says Deven Choksey, managing director at K.R. Choksey Shares & Securities.
The brokerage had expected that the RBI may raise the risk weighting for real estate loans (another tightening measure) to 125% or 150% from the current 100%. A bank’s assets are weighted according to the credit risk assigned to them.
Such moves could have acted as a deterrent for banks when lending to realtors and helped curb the spike in property prices.
Prices have risen around 15% across India in the last few months with rates in cities like Mumbai and Delhi rising even further, says Anubhav Gupta, analyst at Kim Eng Securities India.
So even while prospective buyers continue to suffer from soaring property prices, builders just got a reason to smile.
Source: WSJ.com: India Real Time