Rising towers, soaring stocks: Will the good times last?

For DLF Ltd, new bookings are expected to moderate to  ₹2,800 crore in Q4FY24 owing to a lack of new launches, estimates Motilal Oswal Financial Services. Photo: Mint
For DLF Ltd, new bookings are expected to moderate to 2,800 crore in Q4FY24 owing to a lack of new launches, estimates Motilal Oswal Financial Services. Photo: Mint

Summary

  • With the Nifty Realty Index up 23% in 2024, most listed realty companies are trading above the value of their existing pipelines and any disappointment in pre-sales and launch trends could upset the apple cart.

Residential real estate companies are on a roll. Pre-sales or booking numbers of large realty firms for the March quarter (Q4FY24) indicate solid momentum, likely supported by slew of new project launches and existing inventory.

For instance, Macrotech Developers Ltd (Lodha) achieved pre-sales 4,230 crore, up 40% year-on-year, aided by new launches in Mumbai. With that, it achieved its FY24 sales bookings target. Prestige Estates Projects Ltd saw pre-sales of 4,707 crore in Q4, leading to record pre-sales of 21,040 crore in FY24. Godrej Properties Ltd, which launched Godrej Zenith in Gurgaon and Godrej Reserve in Mumbai, surpassed Prestige with pre-sales of 22,500 crore in FY24.

On the other hand, Sunteck Realty Ltd could be on the backfoot thanks to delays in its new tower at Mira Road. And for DLF Ltd, new bookings are expected to moderate to 2,800 crore in Q4FY24 owing to a lack of new launches, estimates Motilal Oswal Financial Services.

Nonetheless, listed real estate companies continue to benefit from the increased pace of consolidation in the sector. This is said to have led to faster exhaustion of unsold inventory. In Q4, realisations could get a boost from price hikes. According to Nuvama Research, average prices are likely to have risen 10-12% year-on-year and 3-5% sequentially.

Realty stocks have been rewarded for resilience in pre-sales despite elevated home loan rates. So far this year the Nifty Realty Index has rallied 23%, against the Nifty50’s moderate 5% return. Sobha Ltd, Godrej Properties Ltd and DLF Ltd are among the top contributors to this rally.

The question, of course, is whether these impressive pre-sales trajectory can be sustained. The management commentaries on FY25 launch pipeline and pre-sales targets will be crucial, especially given the high base. “Investors are concerned whether three of the largest developers can sell more than Rs20,000 crore each in FY25. We expect Q1FY25 to be slower due to delays in launches related to RERA (Real Estate Regulatory Authority) approvals, and guidance will likely be conservative at the start of the year," read a Morgan Stanley report dated 9 April.

Q1FY25 will coincide with the general elections. As of now, no surprises are expected here. But some point out that given the unorganised nature of the sector, the Maharashtra assembly elections that are likely to be held in H2FY25 will be more vital for Mumbai-focused developers, given that Mumbai and Pune are among India’s prime realty markets.

Companies are likely to focus on business development activities and land acquisitions — important factors to maintain the launch momentum. According to Lodha’s operational update, during FY24 it added new projects with a total gross development value of 20,300 crore across various micro-markets of MMR, Pune and Bengaluru, exceeding its guidance of 17,500 crore. The progress of other listed companies on this parameter will be important. Most listed real estate companies have so far managed to keep their debt at comfortable levels. However, borrowing costs remain elevated.

Meanwhile, premium and luxury housing continues to see increased traction while the affordable-housing segment remains a laggard. An interest cut by the Reserve Bank of India in 2024 could boost sentiment and revive sales in this segment. But for now, new launches are expected primarily in the premium and luxury segments.

That said, the sharp rally in stocks has made valuations expensive. Most listed realty companies are trading above the value of their existing pipelines, said a Motilal Oswal report. Any disappointment in pre-sales and launch trends could upset the apple cart.

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