Real Estate stocks fall up to 4% as concerns of secondary impact of US-Iran war rise

Shares of Indian real estate companies Godrej Properties, DLF, Brigade Enterprises, Lodha, and others are trading with losses of up to 4% on Thursday, March 19, as worries about the secondary impact of the US-Iran war, continue to rise, impacting sectors beyond just the oil sensitives.

Godrej Properties is the top loser on the Nifty Realty index, down 4% in today's session, followed by Brigade Enterprises, DLF, and Sobha, which are down between 3% to 4%.

The war between the US and Iran has escalated after both parties attacked energy infrastructure overnight, impact gas production operations at the world's largest gas fields in Iran and Qatar.

In an interaction with CNBC-TV18, Neelkanth Mishra of Axis Securities warned of the second order effects that the ongoing US-Iran war is starting to have, including that on the real estate sector.

"There are second order effects showing up. So, we now have real estate companies wanting to write to RERA that projects are going to get delayed because tile supply is stuck. There are retail companies which are slowing down their store expansions because tiles are not available. There are auto component companies which are struggling to get carbon black. There are there are issues with LNG supply in certain parts of auto manufacturing which can actually start affecting auto production. So, the second order effects of this, and remember, there's going to be global impact of this," Mishra said.

Natural Gas and propane are important input components of tile manufacturing, which is an important component for real estate. As much as 20% to 35% of the total production cost of tiles comes from gas.

The attack on gas infrastructure had already prompted QatarEnergy, one of the largest producer and supplier of LNG, to declare a Force Majeure, right at the start of the war in early March. Reports suggest that the ceramic tile industry is facing crisis due to the shortage of gas supply.

While real estate companies have not yet quantified or highlighted any potential impact on operations due to the war, Prashin Jhobalia, Chief Marketing Officer at House of Hiranandani, told CNBC-TV18 that the sourcing of their material has been planned well in advance and therefore, they are insulated from short-term supply shocks. "While there are reports of material shortages in parts of the industry, our projects continue to move as scheduled," he added.

For an industry wide impact, Jhobalia expects the impact to be uneven. "A prolonged geopolitical conflict could push up input costs and extend supply timelines, but the impact will be uneven. Developers with strong balance sheets, disciplined procurement and a long-term product focus will navigate this far better than those driven by short-term cycles. The market is resilient—and phases like these tend to reward quality-led players," he added.

The Realty index is now down 10% for the month, led lower by shares of Signatureglobal India, which is down 21%, and Lodha Developers, which is down 16% this month. In fact, shares of Lodha are at a 52-week low. Shares of DLF, Sobha, Godrej Properties are also down between 9% to 10% for the month so far.