Strong demand foundations propel real estate cos back into the spotlight

UBS predicts a continued uptrend in the real estate market, with residential pre-sales expected to grow at a 15 percent compound annual growth rate (CAGR) from FY24 to FY29.

After taking a breather in the past month amid moderating pre-sales, the real estate sector is back in the limelight, marching ahead on hopes of continued housing demand. As the year draws closer to an end, several brokerages are going overweight on the realty sector, basing their bets on the sector's record-high affordability, favourable regulatory reforms, increased developer consolidation, multi-year low inventories and stabilising interest rates.

According to Jefferies, the Indian housing cycle, which started an upswing in late 2020, following an over 7 year long consolidation has seen sales double since then. However, the firm believes the story is far from over it anticipates another 50 percent volume surge in the next 4-5 years, if the current demand trend is anything to go by.

Meanwhile, investors are also brewing hopes of continued policy support as the Union Budget stands just a month and a half away. Alongside that, a further ease on affordability at the helm of the RBI's imminent rate-cut cycle adds the right hint of flavour for a perfect recipe of growth for the real estate sector.

Furthermore, UBS Securities also sees a bright future for residential property developers, citing favourable demographic trends like rising urbanisation, higher disposable incomes, and the shift towards nuclear family structures as key drivers of sustained demand.

The brokerage predicts a continued uptrend in the market, with residential pre-sales expected to grow at a 15 percent compound annual growth rate (CAGR) from FY24 to FY29.

Similarly, Nuvama Institutional Equities expects a robust launch pipeline in H2FY25, with a strong focus on business development and potential rate cuts to further propel sales for real estate companies.

Growing optimism for the real estate sector powered a sharp rally in the Nifty Realty index, which surged over 17 percent in the past month, far outpacing the Nifty 50's nearly 4 percent gains. Year-to-date numbers also pan a similar story as the realty index has delivered stellar returns of nearly 43 percent, sharply outshining the Nifty 50's 12 percent rise.

Despite the bullish run in realty stocks for the better part of 2024, these scrips have also had their moment of correction, sliding off their peaks and making valuations look a lot more comfortable than earlier.

For investors, the correction seen in bits and pieces through the year, might just have been a cue to start grabbing quality picks. That said, Jefferies throws in a word of caution—execution versus guidance is now under a sharper lens. Stocks that soared in the middle of the year have learned that promises are great, but delivery is king. So, while the future of real estate looks bright, not every star in this galaxy is destined to shine the same.

Also Read | Realty stocks surge on hopes of robust demand; Oberoi Realty, Prestige Estates, Macrotech soar 3-5%