Real Estate Expert Speak: Demand resilience to continue into CY24

1 Mar 2024 , 11:12 AM

Demand resilience in the residential markets is likely to continue for at least the next two to three years according to Anuj Puri, Founder and Chairman, ANAROCK speaking at the IIFL’s Enterprising Bharat Conference. The CY23 residential demand was at a 15yr high, leading to an all-time low inventory overhang and a decadal high average pricing growth of ~15% YoY. Listed developers have been an outsized beneficiary of this upcycle, with M9FY24 pre-sales up 51% YoY, after more than doubling pre-sales over FY21-23. Among the key trends highlighted were continued market share gains for listed developers, increasing share of luxury housing, and price appreciation expectation of 8-10% for 2024.

Strong demand drives all-time low inventory levels and decadal high growth in pricing: 

CY2023 witnessed strong residential demand (+31% YoY) on a high base with sales (in units sold) now at a 15yr peak. Top 7 cities (excl. NCR & Kolkata) of India witnessed 30-50% YoY growth. The cities recorded ~Rs4.9trn sale in value terms, with MMR leading with 47% share, followed by NCR (14%) & Pune (12%). Launches, too, picked up with 25% YoY growth, and lagged demand growth leading to inventory levels declining 5% YoY. Inventory overhang has now come down from 21 months in CY22 to 15 months in CY23. Housing prices across the top 7 cities in CY23 witnessed the highest growth in the last decade; on an average appreciated by 15% YoY; ranging from 10-24% across cities.

Long headway for growth with 100mn new households to become home ownership capable: 

ANAROCK sees 100mn new households becoming ‘Home Ownership Capable’ (annual household income Rs0.5-2.8mn & >Rs2.8mn) by 2030, highlighting the massive opportunity for the sector. Some of the interesting trends as per ANAROCK were: 1) the share of high-end, luxury and ultra-luxury sales (ticket size of >Rs 8mn/unit) for 2023 doubled from 2018 (from 24 to 50%, 45% in CY22) and the share of affordable (ticket size <Rs4mn) has more than halved to 18% (20% in CY22) from 40%. 2) Industry consolidation was highlighted by the fact that the leading listed & unlisted developers share is now at 34% in 1HFY24 vs 31% YoY vs 17% in FY17. 3) Completions continue to reach new highs, now at 0.44mn units (+8% YoY) in CY23 for the industry; further expected to grow by 22% in CY24. The sharp price increase in CY23 and over the last few years has largely been a catch-up for the last 6-10 years. Within the Tier2 cities, Anuj was positive on the Lucknow and Ahmedabad markets.

Near-term demand outlook healthy: 

Anuj sounded positive on residential demand for the next two to three years, as the overall affordability remains attractive with inflation currently in check and interest rates expected to moderate H2CY24 onwards. Luxury housing demand is likely to remain robust and Grade A/ Listed developers continuing to further consolidate their market share. A price appreciation of 8% – 10% is likely for CY24. Anuj further highlighted that he does not see high speculative demand coming in due to lower price appreciation expectation vs other asset classes.

Commercial – demand resilience:

Indian Commercial Office sector saw 38msf of net absorption in CY23 — the second best after 2019 (record leasing). The healthy momentum in Q3FY24 (highest quarterly absorption) indicates that the momentum is likely to continue through CY24. Anuj highlighted that leasing volumes by domestic firms (44% share in 2023 vs 33% in 2020) have exceeded volumes by US and European companies in CY23.

IIFL View – listed developers to see another strong year of growth: 

Listed developers have reported a 51% YoY growth in presales for M9FY24 driven by strong new launches, and aided by healthy pricing growth. The growth is despite a 47/44% growth each in FY22/23 respectively, much higher than 20-25% growth guided by the developers. Q4FY24 is also expected to be robust with healthy launches planned by most developers. Over M9FY24, DLF, GPL and PEPL have registered the highest pre-sales growth, while OBER has lagged with a YoY decline (although Q4 is expected to be healthy).