Realty cos gear up to meet FY24 launch target

Residential property sales of listed companies have been immune to a rising interest rate scenario. Photo / Harikrishna Katragadda HT Media
Residential property sales of listed companies have been immune to a rising interest rate scenario. Photo / Harikrishna Katragadda HT Media

Summary

  • Real estate companies are set to ride a wave of launches in the second half of the financial year. But the sector could face a bit of a dampener from delayed interest rate cuts, the slowdown in the IT sector, and outcomes of state elections.

Real estate stocks are in fine fettle and mirroring the upbeat mood is the Nifty Realty index, which has rallied by 62% so far in CY23. The reasons are simple. Demand is robust. Plus, a pause on the interest rate hiking cycle by the Reserve Bank of India has aided sentiments.

Financial results of companies have brought cheer too. Pre-sales or bookings were impressive in the seasonally weak September quarter (Q2FY24). The top 14 listed developers reported 48% year-on-year (y-o-y) pre-sales growth in Q2, and 44% sequentially, led by Prestige Estates Projects Ltd and Godrej Properties Ltd, said IIFL Securities Ltd in a 20 November report. For H1FY24, pre-sales were 32% higher y-o-y. Expectations are that H2 will be better as most of the FY24 launch pipeline would come on stream.

Tale of two halves
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Tale of two halves

Generally, launches in the first half of a financial year tend to be relatively slower due to monsoons and the occurrence of the Shradh period, when potential buyers avoid purchases. But the pace of launches fastens in H2, and this year should not be any different. Notably though, developers have a lot of ground to cover to meet their FY24 launch targets.

Thus, with a flood of supply expected in H2, the pace of launches would be a differentiating factor for real estate stocks. This is because timely launches are crucial to meet FY24 pre-sales guidance. It’s likely that investors may allocate more brownie points to launches in the premium and luxury/ultra-luxury housing units.

A case in point is Oberoi Realty Ltd. The company announced the launch of its much-awaited luxury residential project (Forestville) in the Kolshet area of Thane, near Mumbai, on 20 November. The project will be spread across 18 acres and comprise five residential towers, predominantly having 3BHK apartments starting at 1.87 crore. On 21 November, the stock was rewarded by the Street, soaring to a 52-week high of 1,415 apiece.

As things stand, residential property sales of listed companies have been immune to a rising interest rate scenario. Now, the spectre of rate hikes is largely out of the sector’s way, providing some breather to property buyers who have taken home loans. That said, interest rate cuts are awaited. A delay could keep home loans elevated for longer. Plus, realtors have taken price hikes for select projects and locations, partly due to increased input costs. Steep price hikes could hurt affordability and derail the demand momentum.

Average residential prices in key micro markets across the top seven cities have seen a significant surge between October-end 2020 and the corresponding period in 2023, said Anarock Property Consultants. Key IT-led micro-markets in Hyderabad, Bengaluru and Pune saw the highest surge in average prices in this span. Pune’s prominent localities of Wagholi, Hinjewadi and Wakad–all three in the city’s IT influence zone–saw average prices rise by 25%, 22% and 19%, respectively, according to Anarock.

But the tailwinds are reversing with the boom in the IT sector during the pandemic, which had given real estate sales a shot in the arm, fizzling out. The Indian IT sector is coping with demand uncertainty, which has meant subdued hiring. If the IT sector’s fortunes do not revive soon then it could have a bearing on the residential property sales momentum. Besides, any upward revisions in stamp duty on residential real estate post key state elections, such as in Telangana, could be a dampener.

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