Real Estate Q3FY24 update: Nearing a photo finish in FY24

16 Jan 2024 , 11:30 AM

Listed residential developpers have reported ~49% YoY growth in pre-sales for Q3FY24 so far, and ~39% YoY growth in pre-sales on an annualised basis based on M9FY24. With some of the developers having strong launches, like DLF and GPL, yet to report; analysts of IIFL Capital Services expect the listed universe to see pre-sales growth of >80% YoY. Office leasing witnessed a sharp rebound, driven by strong demand from Global Captives. However, retail mall consumption is tracking lower than H1, driven primarily by muted Apparel, Fashion and QSR segments. Q4 is typically the strongest quarter for residential developers, driven by new launches. Expect the medium-term outlook to continue; valuations are expensive with strong outperformance to broader markets.

Residential – going from strength to strength: 

Operational update disclosures by listed developers in Q3FY24 suggest continued strength in demand momentum. So far, eight developers have reported pre-sales growth of 49% YoY and -8% QoQ. For M9FY24, developers have reported 52% YoY growth. Most developers have reported strong growth in Q3 – PEPL (+111% YoY)/ RUSTOMJE (+42%)/ PURVA (+56% YoY)/ Signature Global (+47%), with SOBHA reporting its best-ever pre-sales (+37%). However, developers like LODHA (+12% YoY)/ Kolte Patil (+4% YoY) reported relatively soft performance. Overall, analysts of IIFL Capital Services expect top 12 developers to report 84% YoY and 25% QoQ growth in pre-sales for Q3FY24. Developers maintain their bullish outlook for FY24, guiding for 15-20% YoY growth in pre-sales for FY24; to be largely driven by higher launches (guidance of >20% growth YoY).

Demand at the industry level has also been healthy for Q3FY24 — up 12% YoY/ 9% QoQ, as per the data from Knight Frank (for the top 8 cities of India); implying continued market share gain for organised players. Property registration nos (including secondary sales) were healthy too, as the Mumbai property market in December’23 saw 12,285 property registrations (+34% YoY/ +26% MoM), +23% YoY/ +3% QoQ for Q3FY24. Maharashtra registrations were up 8% YoY/ down 2% QoQ for Q3FY24. 

New launches drive strong performance: 

Stellar growth in Q3 for listed players has come due to the significant pickup in new launches. Among the key launches during the quarter were — DLF (DLF Privana South), Prestige (Prestige City, Hyderabad), GPL (Godrej Aristocrat), SOBHA (Neopolis Bangalore), Brigade (Sanctuary Bangalore) and Oberoi Realty (ForestVille, Thane). DLF announced the complete sale of its new launch — DLF Privana South — leading to pre-sales of ~Rs72bn. GPL’s Sector 49 project in Gurgaon ‘Godrej Aristocrat’ too was completely sold out at the launch, with estimated bookings of ~Rs26bn. PEPL launched ‘Prestige City Hyderabad’ and managed to sell inventory worth Rs25bn. Further, Q4 is likely to be the strongest launch quarter for listed developers. While most developers would be able to meet their FY24 guidance, analysts of IIFL Capital Services believe that DLFU/ PEPL/ GPL are likely to surpass.

Office – recovery underway: 

Net absorption for Q3FY24 was robust, as per data from Cushman and Wakefield; coming in at 18.6msf (+50% YoY, +130% QoQ). This was driven by Bangalore, Hyderabad & Mumbai; which accounted for 69% of the overall leasing. Gross absorption for Q3FY24, too, was robust at 27.3msf (+50% YoY, +80% QoQ). For CY23, net absorption was ~41msf — near CY19 levels. For listed REITS: 1) Demand from Global Captives is steadily improving and likely to outstrip the weak outlook from IT/ITES. 2) Steady improvement in work-from-office trends 3) Probable shift in the interest rate environment in early FY25 acting as tailwinds to REIT unit prices. 

Retail – consumption growth muted: 

PHNX reported 4% YoY growth in consumption in Q3FY24 on a like-to-like basis — much lower than H1 average of 9-10%. Consumption was weak across all the key malls — Palladium Mumbai, PMC Bangalore, Chennai and Pune — ranging from 5% growth to a decline of 2% YoY. For M9FY24, consumption growth was 8% YoY LTL, against the guidance of 12.5% for FY24. Analysts of IIFL Capital Services expect NXST to sustain superior consumption growth vs the industry, given the operational turnaround story underway.