Housing Theme: A Turnaround Story In The Making?

After a long wait, the housing market finally seems to be on the mend. Investors with a risk appetite can make most of what some estimates peg as an emerging USD 1 trillion opportunity by investing in housing stocks directly. This is on the basis of the expectation that the real estate sector in India is expected to reach USD 1 trillion by 2030 and by 2025 the sector is projected to contribute 13 per cent to India’s GDP.

Others, who find it hard to make such investment decisions on their own, might be better off by investing in mutual fund schemes catering to the theme, managed by fund managers with consistent track record. Data showed housing sales volumes surged 113 per cent across seven major cities in the December quarter. This surge was not a one-off. Housing sales have been strong over the past few quarters and this has led many to believe that the oversupply in the sector which was created in the 2008-2013 phase is now fully absorbed.

Factors at Play

One of the prominent factors which are aiding housing as a theme is the government’s thrust to revive the sector. This can be seen through recent initiatives such as increase in allocation to PM Awas Yojana to ₹48,000 crore in FY23 from ₹27,500 crore in FY22, a 35 per cent increase in capex to ₹7.5 lakh crore Financial Planning in FY23 and allowing 100 per cent foreign direct investments in townships and settlement development projects. Apart from this, the Reserve Bank of India’s support in keeping the policy stance accommodative and policy rate at 4 per cent, and consequent low housing loan rates, are also helping the housing market make a comeback.

Another important factor is India's favourable demographics, rapid urbanisation and better affordability. India’s urbanisation rate today is much lower than the global average, with only 35 per cent of India being classified as urban compared with the global average of 54 per cent. This suggests there is ample catching up opportunities ahead for the sector. Besides, India’s urban population, which grew 3.4 times the growth rate of the rural population in the last decade, is seen growing at five times the growth rate of the population over the next decade. 

With the rise in urban population, there is likely to be additional requirement of residential options. Add to this, India is likely to have a young population with a median age of 30 by 2030 which is much lower than the world’s and China’s median age. As the average age falls, the ratio of dependent population to working-age population size would also fall further, implying rising income households, which holds the potential to boost housing demand in the years ahead.

A Housing Fund to Consider

The recent optimism over the sector has been captured by the recently launched NSE Housing Index. Today, investors who wish to play the housing theme can do so by not only investing in shares of residential developers and housing finance companies but also into companies in allied sectors such as construction, cement, paint makers, tile makers, building products, utilities, metals, consumer durables, etc. 

Investors who are not adept at direct investing can consider taking exposure to this theme via the mutual fund route. On the basis of the recently launched housing index as its benchmark, one of the leading fund houses has announced a new fund offering which aims to tap into the opportunities that housing as a theme presents. This open-ended equity fund has the flexibility to invest across any company or sector which is expected to benefit from growth in the housing theme. 

Since this is a thematic offering, a minimum of 80 per cent of the portfolio will be invested in equity or equity-related instruments of the housing and allied sectors. For an investor looking to invest in this scheme, he or she should be ready to stay invested for at least three years and above such that the thesis of the fund can play out. The minimum application amount at the time of subscription during the new fund offer period is ₹5,000. The NFO starts from March 28 and will stay open until April 11.