Realty firms with higher exposure to premium housing to fare better in Q4

Data from property consultants and visibly high activity in the premium housing market suggests record pre-sales are likely for majority of listed developers in Q4FY23.
Data from property consultants and visibly high activity in the premium housing market suggests record pre-sales are likely for majority of listed developers in Q4FY23.

Summary

  • Apart from FY24 pre-sales guidance, tracjectory of new launches and commentary on debt are among the crucial monitorables in the Q4FY23 management commentary

Rising interest rates translating to expensive home loans have played spoilsport for the affordable housing segment in the recent past. On the other hand, segments such as premium housing have been showcasing demand resilience.

Data from property consultants and visibly high activity in the premium housing market suggests record pre-sales are likely for majority of listed developers in Q4FY23, said analysts at Jefferies India Pvt Ltd in a report dated 4 April. On a year-on-year basis, companies such as DLF Ltd, Oberoi Realty Ltd and Sobha Ltd are expected to report higher pre-sales in Q4FY23.

"We expect pre-sales of ~Rs9000 crore for DLF; helped by the sell-out response to the Arbour project. Oberoi and Sobha likely to post ~30%+ sales growth. Former should see good performance of the Worli Three Sixty West project. For Sobha, good performance of its Gurgaon project and at the premium properties in Bangalore to help," according to the Jefferies report.

Apart from FY24 pre-sales guidance, tracjectory of new launches and commentary on debt are among the crucial monitorables in the Q4FY23 management commentary.

Meanwhile, in the last one year the Nifty Realty Index has declined around 17%. The spree of interest rate hikes by the Reserve Bank of India dampened investor sentiment towards the sector.

Apart from concerns on demand momentum being hampered, there were worries that the cost of borrowing for real estate developer would also inch higher due to higher interest rates. This does not bode well for those with leveraged balance sheets.

Following the correction in stock prices, valuations have also cooled-off. "The sector valuations (PBx) are near the 10-year average after correcting around 40% from their 2021 peak. Given sector consolidation, better corporate balance sheets and a likely near term peak in rising rate cycle; we believe valuations are near a bottom," added the Jefferies report.

On Thursday, the Reserve Bank of India kept key lending rates unchanged. While this is a sentiment positive for rate sensitive real estate stocks, a downside risk in the form of layoffs in the IT sector lingers.

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