The real estate cycle seems to be maintaining a positive momentum and experts said developers are expected to report strong earnings numbers for the quarter ended December. The outlook for the next two quarters is expected to be positive, driven by a robust pipeline of new project launches.
Even though rising interest rates are fuelling mortgage rates higher, structural factors remain intact and so does demand for housing. Strong demand and softening input prices coupled with affordability are likely to drive a healthy double-digit growth for both revenue and earnings for the sector.
“We expect the aggregate revenue/EBITDA/PAT for the coverage universe to report sequential growth by 32/52/41.1 percent,” HDFC Securities Institutional Research said in a report.
On an aggregate level, the brokerage expects the margin to expand by 440 basis points (bps) quarter on quarter, largely on account of the mix and cooling off of commodity price inflation.
Analysts at Antique Stock Broking forecast a 15.6 percent YoY and 22.2 percent sequential sales growth for the sector. They expect EBITDA to improve by 16.7 percent on year and 28.4 percent QoQ, resulting in a 35.2 percent on year growth in earnings, a 32 percent rise from the previous quarter.
Brewing concerns
There are some concerns brewing about demand due to the double-edged sword of rising prices and mortgage rates.
“While there could be an impact on industry-level demand, the trend of continued market share gains for listed players will likely see them report strong pre-sales numbers,” analysts at Kotak Institutional Equities said.
Gurugram led the pack with strong double-digit pricing growth, followed by Bengaluru with high single-digit growth.
“We believe developers would not take price hikes now and support recovery,” said the analysts at HDFC Securities. Growth will be supported by receding commodity and economic headwinds.
Strong pre-sales
The central bank increased interest rates by 225 bps in the first nine months of FY23.
“Despite the unfavourable effect on mortgage rates, the demand for housing has sustained; corroborated by Macrotech’s 9MFY23 presales of Rs 9,040 crore (+62 percent YoY) and Sobha’s 9MFY23 presales of Rs 3,730 crore (+35 percent YoY),” said the HDFC Securities analysts.
They expect DLF to report presales of Rs 2,100 crore, Brigade Rs 900 crore, Mahindra Lifespaces Rs 500 crore, Oberoi Realty Rs 1,200 crore, Prestige Estates Rs 3,100 crore, and Godrej Properties Rs 2,500 crore in Q3 of FY23.
Even after rate hikes and inflation concerns, property registrations in Mumbai in December remained stellar for the third year in a row.
According to a report from JM Financial Research, “Mumbai property registrations saw third best December with 9,182 registrations (down 5 percent YoY; +5 percent MoM) after December 2020 and December 2021 as they benefitted from stamp duty cuts.”
There were 26,214 registrations in Mumbai in the third quarter, up 1 percent on year but down 8 percent on quarter.
While Q2 was defined by higher sustenance sales, Q3 was marked by a decent number of launches by top developers. More launches are planned for Q4 of FY23 and Q1 of FY24.
Commercial segment
With the opening up of the economy and the diminishing impact of the pandemic, people have gradually returned to office across markets.
On the retail side, consumption patterns remain extremely healthy. Incrementally, leased occupancy and trading occupancy are also likely to converge, thereby increasing rentals.
“We expect occupancies for commercial office players to continue to improve gradually, in line with an improvement in physical occupancy for companies and the seasonal uptick will likely see better consumption numbers for retail assets such as those of Phoenix Mills,” said the analysts at Kotak.
Experts are optimistic about stocks that have differentiated product offerings such as Oberoi Realty, which is a premium real estate play. Mahindra Lifespaces may outperform on additions in industrial and new land banks, backed by new project launches.
The analysts at HDFC Securities like DLF as it is a play on the National Capital Region market and late cycle commercial office recovery while in the southern markets, they like Brigade and Prestige Estate. Phoenix Mills is their top pick in the pure play retail mall space.
The analysts at JM Financial Services remain constructive on the residential cycle backed by high absorption, low inventory and visible consolidation trends. At current prices, DLF, Macrotech Developers, Mahindra Lifespaces, Oberoi Realty, and Prestige Estates remain their preferred picks.
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