Real Estate Q2FY24 update: Residential – Onwards and upwards!

13 Oct 2023 , 11:38 AM

Listed developers who reported Q2FY24 pre-sales so far, have witnessed 52% YoY growth, meaningfully higher than ~12% growth for the industry, implying continued strong market share gains. The growth is despite the rather muted new project launches that are heavily skewed towards the H2FY24. Buoyant demand across primary and secondary markets is also driving price increases; especially in the NCR markets. Analysts of IIFL Capital Services expect most residential developers to benefit from these tailwinds; expect developers with strong launch pipeline, healthy balance sheet and benefit of low-cost land bank to outperform – DLF and BRGD remain analysts of IIFL Capital Services top picks.

Listed developers continue to report sustained growth: Operational update disclosures by listed developers suggest continued demand momentum in Q2FY24. So far, seven developers have reported pre-sales growth of 52% YoY and 35% QoQ. For the H1FY24, these developers have registered a growth of 38% YoY. Most developers reported their best-ever pre-sales in Q2 – LODHA registered 12% YoY growth, SOBHA and PEPL at 48% YoY each. PURVA (+102% YoY) too, saw its best-ever quarterly pre-sales performance, while developers like RUSTOMJE (-33% YoY)/ Signature Global (+4% YoY) reported relatively soft performance. Overall, analysts of IIFL Capital Services expect top 11 developers to report 38% YoY and 34% QoQ growth in pre-sales for Q2FY24. Developers maintain their bullish outlook for FY24, guiding for 15-20% YoY growth in presales for FY24, to be largely driven by higher launches (guidance of >20% growth YoY). 

Data from Knight Frank for the top eight cities of India, suggests demand at the industry level has also been healthy for Q2FY24, up 12% YoY/ 7% QoQ; implying strong demand momentum and continued market share gain for organised players. Pricing growth has ranged between 3-11% YoY and 0-5% QoQ. Property registration nos too indicate overall market (including secondary sales) growth being healthy; Mumbai property registrations came in at 10,694 units for September’23; up 24% YoY/ down 2% MoM; up 12% YoY for Q2FY24. Maharashtra registrations were up 25% YoY/ down 5% MoM for Q2FY24. 

Strong outlook for H2 driven by launch pipeline: 

The stellar growth for listed players has come in despite new launches being muted for H1. Analysts of IIFL Capital Services estimates suggest of the expected GDV launches in FY24, H1 witnessed only 20%, with 80% value of launches expected in H2FY24. This is expected to drive strong growth, with Q4 likely to be the strongest quarter. Among the key launches that are lined up: – DLF (Crest 2, New Gurgaon launch), Prestige (Hyderabad and Chennai), GPL (Ashok Vihar, Worli), Brigade (Chennai) and Oberoi Realty (Thane Pokaran launch). 

Trends: Luxury continues to fare well; NCR markets seeing strong uptick: 

Share of luxury offering continues to increase, with Knight Frank data suggesting the share of premium projects (ticket size >Rs10mn) for Q2FY24 at 35% vs 28% YoY. Most listed developers also continue to focus on luxury/premium offerings, making up for the slack in the Affordable Housing segment. Further, in analysts of IIFL Capital Services recent note, they highlighted that the NCR markets are witnessing strong demand uptick, with new launches being lapped up across Gurgaon and Noida; especially for reputed developers. Resale markets are also strong with meaningful price appreciation, and land prices have been steadily rising. NCR has seen a sharp consolidation of supply; likely to benefit all NCR developers on volumes and pricing. 

Reiterate DLF and BRGD as top picks: 

The sector trades at 11% premium to NAV (vs average premium of 6%). YTD, Realty Index has outperformed the broader index by 32%, aided by the RBI rate pause. Analysts of IIFL Capital Services prefer developers with high operating cashflow margins and low leverage levels to be better-placed – DLF and BRGD are their top picks. DLF stands to benefit the most, given its aggressive launch pipeline (Rs190bn launches expected in H2FY24), premium positioning, and benefit of low-cost large land reserves (>100msf in NCR).