Housing demand trend to stay intact, says Jefferies; downgrades Prestige, Sobha, upgrades Mindspace REIT

  • The housing upcycle has been premium led, whose share has risen by 14 percentage points since 2019. Meanwhile, the affordable segment has been hurt by rising interest rates and income losses.

Ankit Gohel
First Published10 Jan 2024, 10:03 AM IST
Jefferies downgraded Prestige Estate Projects to ‘Underperform’ from ‘Hold’ but raised its target price to  <span class='webrupee'>₹</span>1,000 per share from  <span class='webrupee'>₹</span>750 earlier.
Jefferies downgraded Prestige Estate Projects to ‘Underperform’ from ‘Hold’ but raised its target price to ₹1,000 per share from ₹750 earlier.

The Indian housing market volumes surged 25% YoY in 2023, doubling in 3-years, and this positive trend in the residential real estate demand is expected to stay intact, said Jefferies.

After a seven-year long weak phase, there is a significant headroom for volume to grow in the medium term, the foreign brokerage added. It expects housing volume growth 10% despite a cool down in the pace.

The housing upcycle has been premium led, whose share has risen by 14 percentage points since 2019. Meanwhile, the affordable segment has been hurt by rising interest rates and income losses. But Jefferies believes that is now behind us and expects potentially lower mortgage rates in H2CY24, which will be positive.

Also Read: Delta Corp shares plunge 5% after weak Q3 FY24 earnings

“Also, the government reintroducing the interest subvention scheme (guidelines likely in Feb24 budget) could provide a trigger. We expect some demand to shift to mid-end or affordable in 2024,” Jefferies said in a report.

The brokerage noted that inventory was at cycle lows at 17-months supply, which should keep pricing strong (10% gains) in 2024. However, it believes disciplined price hikes are important for the residential cycle to continue, given low rental yields. 

This is because sharp price jumps drive end-users away as affordability declines and also lead to weaker quality supply. 

“It may also risk attracting regulatory action, with for example, RBI recently tightening consumer lending regulations a case in point. We remain watchful,” Jefferies said.

(Exciting news! Mint is now on WhatsApp Channels :rocket: Subscribe today by clicking the link and stay updated with the latest financial insights! Click here!)

Meanwhile, the risk appetite among developers is finally rising, as they bet on market strength and potential consolidation. Strong cash flow generation is expected to persist thru 2024; though rising competition and higher pricing would raise scrutiny of land deal economics.

Jefferies said there is little room for error for developers. 

After a 127% Nifty Realty index rally since March 2023 lows, valuations for the real estate stocks are mostly at highest levels. 

“Strong growth and developer discipline is supportive; though high expectations leave little scope for disappointment. Developers which are better placed on valuations viz. Godrej Properties and Sunteck Realty are the top large/mid-cap picks,” Jefferies said.

Also Read: Budget 2024-25: Three key expectations for the real estate sector

Top picks

Jefferies downgraded Prestige Estate Projects to ‘Underperform’ from ‘Hold’ but raised its target price to 1,000 per share from 750 earlier.

It also downgraded Sobha to ‘Hold’ from ‘Buy’ but raised the target price to 1,265 from 900 earlier, as after sharp recent rallies, Jefferies await better entry points. 

Meanwhile, in the office space, leasing uptick for offices in late 2023 is driving vacancy levels lower; though still 6-7 percentage points above pre-COVID. The brokerage believes relaxation in SEZ rules should drive improved flexibility for large office holders. Rental uptick is still only back-ended, at best, in 2024, with NCR/MMR and CBDs leading the upturn.

Jefferies upgraded Mindspace Business Parks REIT to ‘Buy’ from ‘Hold’ with a target price of 365. 

Catch Live Market Updates here

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.MoreLess

News in Numbers

Numbers that help you understand news better
1.4%

₹773 Cr

₹2,705 Cr

₹1 Cr

₹14,370 Cr

₹5.74 T

First Published:10 Jan 2024, 10:03 AM IST
HomeMarketsStock MarketsHousing demand trend to stay intact, says Jefferies; downgrades Prestige, Sobha, upgrades Mindspace REIT

Most Active Stocks

NTPC

384.05
11:04 AM | 15 JUL 2024
6.8 (1.8%)

Tata Steel

167.50
11:04 AM | 15 JUL 2024
-1.2 (-0.71%)

Bharat Electronics

333.40
11:04 AM | 15 JUL 2024
0.1 (0.03%)

Indian Oil Corporation

168.65
11:04 AM | 15 JUL 2024
1.75 (1.05%)
More Active Stocks

Market Snapshot

  • Top Gainers
  • Top Losers
  • 52 Week High

Vardhaman Textiles

561.50
11:01 AM | 15 JUL 2024
39.8 (7.63%)

HBL Power Systems

608.60
11:02 AM | 15 JUL 2024
36.4 (6.36%)

CEAT

2,780.50
11:02 AM | 15 JUL 2024
155.55 (5.93%)

Route Mobile

1,876.95
11:01 AM | 15 JUL 2024
104.6 (5.9%)
More from Top Gainers

Recommended For You

    More Recommendations

    Gold Prices

    • 24K
    • 22K
    Bangalore
    74,771.00290.00
    Chennai
    73,827.00-145.00
    Delhi
    73,972.00-799.00
    Kolkata
    74,045.0073.00

    Fuel Price

    • Petrol
    • Diesel
    Bangalore
    102.86/L0.00
    Chennai
    100.75/L-0.01
    Kolkata
    104.95/L0.00
    New Delhi
    94.72/L0.00
    OPEN IN APP
    HomeMarketsPremiumInstant LoanMint Shorts