The Indian real estate market has remained robust in recent years, driven by factors such as urbanisation, rising middle-class incomes, foreign investments, and government support. This has resulted in a surge in demand, particularly for mid-range and premium housing.
As urbanisation increases and incomes rise, there is a growing preference for premium residential properties offering prime locations, superior amenities, holistic living experiences, a community of like-minded individuals, and modern comforts.
This positive momentum has spurred real estate development endeavours across key cities like Mumbai, Bengaluru, Gurugram, NCR, and Pune. Notably, the developers witnessed their projects selling out within hours of booking openings, prompting them to launch more projects to meet this growing demand.
Amidst this stellar demand, listed real estate companies ended FY24 on a high note as they delivered 26% YoY growth in pre-sales in 4QFY24 to ₹344 billion, with 4Q turning out to be the best quarter for most of the companies. Top-14 companies cumulatively reported ₹1.1 trillion in pre-sales in FY24, up 41% YoY.
Despite a higher base of bookings, real estate players agree that demand can be sustained in the near future. Continuous wage growth, rising economic activity, and abundant mortgage options have contributed to sustained residential demand and strong office space leasing.
The real estate market in India is currently valued at around `39,80,534 crore, contributing 7.3% of the total economic output. By 2047, it’s projected to expand to `4,84,01,000 crore, contributing a whopping 15.5% to the total economic output, as per the industry estimates.
Domestic brokerage firm Motilal Oswal anticipates its coverage universe to report pre-sales of ₹286 billion in 1QFY25, reflecting a 79% year-over-year (YoY) increase and flat quarter-over-quarter (QoQ) performance. The firm notes that new launches among its coverage companies were steady, with notable exceptions being DLF and Godrej Properties, which successfully launched key projects in NCR and Bengaluru.
Both DLF and GPL experienced robust responses to their new projects, enabling them to outperform their peers during the quarter. Among the companies, Motilal Oswal expects Godrej Properties, Mahindra Lifespace Developers, DLF, and Oberoi Realty to report a 2-4x YoY surge in bookings.
Conversely, the brokerage predicts that PEPL (Prestige) will report an 11% YoY decline due to a lack of significant launches and a high base effect. The cumulative collections from the coverage universe companies are projected to rise by 4% YoY to ₹161 billion, implying a collection efficiency of approximately 60%.
Furthermore, Motilal Oswal projects the cumulative revenue recognition from the coverage companies to be ₹124 billion, up 28% YoY, with an EBITDA of ₹30 billion, marking a 22% YoY growth.
According to the brokerage, the Indian residential real estate sector maintained its growth momentum in FY24, with a 14% increase in absorption for the top seven cities and a 10% improvement in realisations . With demand continuing to outpace supply (547,000 units in FY24) and an inventory overhang of 11 months, the brokerage expects gradual price hikes to sustain the current demand momentum.
Motilal Oswal anticipates that the favorable demand-supply balance, comfortable inventory levels, healthy pricing power, and opportunities for market consolidation will keep the real estate sector buoyant for the next two to three years. Consequently, it maintains a positive outlook for the sector.
The brokerage has issued a 'buy' rating for LODHA, Godrej Properties, Prestige Estates Projects, Brigade Enterprises, and SOBHA, while remaining 'neutral' on DLFU, Mahindra Lifespace Developers, and Oberoi Realty. Among these, Prestige Estates Projects, Godrej Properties, and SOBHA are highlighted as the brokerage's top picks.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
