CLSA Identifies Two Real Estate Stocks Poised for Growth Despite Sector Challenges

Global brokerage CLSA has expressed a positive outlook for the real estate sector, particularly in light of the policy measures outlined in the Budget 2026. The brokerage believes that while the limitation on Minimum Alternative Tax (MAT) credits could pose a mid-term challenge, the long-term gains from the expansion of Global Capability Centres (GCCs) and data centres will more than offset this impact.

CLSA has named DLF and Embassy REIT as its top picks in the real estate sector. The brokerage highlights several positive steps taken by the government, including greater clarity on taxes and compliance for GCCs and a tax holiday for foreign companies setting up data centres until 2047. These measures are seen as particularly beneficial for property developers focused on building annuity assets and those looking to monetize land parcels for data centre development.

While the restriction on the use of MAT credits may weigh on earnings in the mid-term, CLSA remains optimistic about the overall policy direction. The expansion of GCCs and data centres is expected to drive long-term growth, making these sectors attractive for investors. DLF and Embassy REIT, with their strong track records and strategic focus, are well-positioned to capitalize on these opportunities.

The real estate sector has been under pressure due to various economic and regulatory challenges. However, the policy measures announced in the Budget 2026 are expected to provide a much-needed boost. CLSA's analysis suggests that the benefits from these measures will outweigh the short-term limitations, particularly for companies with a long-term vision and robust business models.

For DLF, the focus on developing high-quality commercial and residential properties, along with its strategic land bank, positions it well to benefit from the expansion of GCCs and data centres. Similarly, Embassy REIT, with its diversified portfolio of office parks and integrated townships, is well-suited to leverage the tax incentives for data centres and the increased demand for modern office spaces.

In conclusion, while the real estate sector faces some challenges, the policy measures in the Budget 2026 are expected to drive long-term growth. DLF and Embassy REIT are identified as the key players that are likely to outperform the sector, making them attractive investment options for investors looking to capitalize on the sector's potential.