Housing slowdown weighs on realty stocks as pre-sales falter, Nifty Realty extends losses

The Nifty Realty index has fallen for seven straight sessions.

• Nifty Realty index drops 7% in seven sessions due to weak pre-sales and guidance.
• Signature Global's pre-sales dropped 27% YoY, triggering negative sentiment
• Gurugram housing demand may drop due to high prices and fewer launches, analysts say.

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The strong rally in real estate stocks is finally showing signs of fatigue as developers deal with slower demand and fewer launches amid stretched prices. The Nifty Realty index has slipped into a seven-session losing streak, after being weighed down down by weaker pre-sales numbers from some key developers and a cut in growth guidance by Signature Global, that added to the negative sentiment.

As the sheen from real estate rubs off, the Nifty Realty index has seen seven consecutive sessions of losses, falling roughly seven percent. Among the key drivers of the selling, Signature Global's latest presales numbers caused investors to offload their holdings in real estate firms.

For the quarter ended December, Signature Global’s pre-sales fell roughly 27 percent year-on-year, with a cut in the full year guidance. The firm clocked a pre-sales Rs 202 crore, selling roughly 1.44 million square feet through 408 homes, lower by 73 percent on-year.

Some analysts are suggesting that the housing demand in Gurugram may taper as a result of high pricing and fewer launches. Not just Signature Global, but other players with a presence in the NCR housing market such as DLF and Oberoi Realty are also expected to see falling pre-sales. In a note, Nomura expects a whopping 93 percent fall in pre-sales for DLF, while Oberoi Realty was likely to see a fall of 43 percent.

As a result, this has caused analysts to believe that the Gurugram housing market may see some pressure. Nuvama Institutional Equities noted that "the housing demand/price growth in the Gurugram market is likely to report a moderation going ahead, given affordability constraints."

Factors behind falling pre-sales

In a conversation with Moneycontrol, Karan Khanna, Lead Analyst for Hotels and Properties at Ambit Capital noted that pre-sales is always a function of sustenance sales and sales from new launches.

"If developers do not see enough demand for their product, they often hold back launches, waiting for demand revival. That is the case with most players like DLF and Oberoi Realty. That said, Oberoi focusses on quality and is generally in no rush to launch, unlike most other developers. This is the primary reason for the YoY fall in pre-sales," he noted.

Pankaj Kumar, VP - Fundamental Research, Kotak Securities concurred, adding that lower launch activity is a key driver behind falling pre-sales. In fact, Kotak Securities expects modest pre-sales across most of its residential real estate coverage in Q3FY26, largely due to lower launch activity.

However, on the flip side, there are some players that are reporting record-high pre-sales and posting their best quarters on record yet. This divergence can be attributed to differences in market entry, launch intensity, and base effects.

"Some developers have expanded into new geographies, while others benefited from strong launches in select markets or a weaker base.Prestige, Godrej Properties, and Sobha have delivered or are expected to deliver robust pre-sales, supported by launches in key cities," added Kumar.

Housing bubble in NCR?

The frenzy reported in the Gurugram market over the past few years is now abating, said Nuvama, adding, "We reckon rationalisation of launches/pre-sales velocity/price appreciation trajectory in the city going ahead."

Kotak also believes that the high-end residential demand (not just in NCR, but across the board) may see a moderate slowdown due to sharp price rises and softer sentiment among IT-sector linked buyers, though medium-term housing prospects remain strong.

Khanna suggested that "it's important to consider actual demand and supply before paying any heed to 'housing bubble' like predictions." He added that housing demand in NCR has always been led by investors who get very aggressive during upcycles and abate when they do not see enough demand.

"Regardless, nobody (developers or investors) compromises on pricing when selling; they compromise on timelines. Investors not seeing enough demand hold onto inventory and developers hold onto launches. They wait for demand to revive," he said. As a result, housing prices in NCR will remain stagnant for some time at the current levels, as a  fall is highly unlikely, even though project specific compromises may be made by developers.

Outlook on real estate stocks

Despite the likely slowdown, Ambit remains bullish on the sector for Grade-A developers owing to consolidation continuing to play out. "We prefer names with high commercial RE exposure and presence across multiple Tier I markets for their residential RE exposure," they added.

According to Kotak, despite selective slowdowns, listed players continue to benefit from modest industry trends, market share gains, expansion into new markets and a strong balance sheet (for most of the  players) supporting business development pipeline. Valuations for most of the developers stand at attractive levels following the weakness in stock prices.

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