Residential real estate companies are listed. Large real estate pre-sale or booking numbers for the March quarter (Q4FY24) indicate solid momentum, likely supported by a slew of new projects and existing inventory.
For example, Macrotech Developers Ltd (Lodha) achieved pre-sale ₹4,230 crore, up 40% YoY, helped by new launches in Mumbai. With this, it has achieved its FY24 sales order target. Prestige Estates Projects Ltd has seen a pre-sale of ₹4,707 crore in Q4, leading to record advance sales of ₹21,040 crore in FY24. Godrej Properties Ltd, which launched Godrej Zenith in Gurgaon and Godrej Reserve in Mumbai, surpassed Prestige with a pre-sale of ₹22,500 crore in FY24.
On the other hand, Sunteck Realty Ltd could be on the back foot 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 due to lack of new launches, estimates Motilal Oswal Financial Services.
However, listed real estate companies continue to benefit from the increased pace of consolidation in the sector. This reportedly led to faster depletion of unsold inventory. In Q4, realizations could get a price boost. According to Nuvama Research, average prices are likely to have risen 10-12% year over year and 3-5% sequentially.
Realty stocks were rewarded for resilience in pre-sales despite rising home loans. So far this year the Nifty Realty Index has grown 23%, against the modest 5% return of the Nifty50. Sobha Ltd, Godrej Properties Ltd and DLF Ltd are among the major contributors to this rally.
The question, of course, is whether this impressive pre-sales trajectory can be sustained. Management’s comments 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 over Rs 20,000 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 is likely to be conservative at the beginning of the year,” read an April 9 Morgan Stanley report.
Q1FY25 will coincide with the general elections. From now on, no surprises are expected here. But some point out that due to the unorganized nature of the sector, the Maharashtra assembly elections that are likely to be held in H2FY25 will be more vital for Mumbai-focused developers, as Mumbai and Pune are among India’s prime real estate hubs.
Companies are likely to focus on business development activities and land acquisitions – important factors in maintaining 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, surpassing its guidance of ₹17,500 crores. 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 rate 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 mainly in the premium and luxury segments.
That said, the sharp rally in stocks has made valuations expensive. Most listed real estate companies are trading above the value of their existing pipelines, said a report by Motilal Oswal. Any disappointment in pre-sale and launch trends could upset the apple cart.