Markets
Pricier homes, regulatory delays are stumbling blocks for realty sales
Summary
- On average, residential property prices across the top seven cities rose by 23% annually in Q3 2024. And a recent channel check by Antique Stock Broking showed that developers are facing approval delays from multiple agencies in several markets.
The Reserve Bank of India (RBI) kept the repo rate unchanged at 6.5% on Wednesday, thus offering no respite from elevated home loan rates. But the RBI changed its stance to neutral, which is seen as an early indicator of changes in policy rates ahead. Unsurprisingly, the Nifty Realty index rose 2.5% on Wednesday. Sentiment aside, the September quarter (Q2FY25) business updates of some listed real estate companies bring mixed tidings.
Take for instance, Macrotech Developers Ltd (Lodha), where Q2 pre-sales or bookings were at ₹4,290 crore despite the Shradh period, when sales tend to be softer. Lodha is on track to meet its FY25 pre-sales guidance of 20% year-on-year growth, it said. On the flip side, net debt rose sequentially by ₹600 crore due to aggressive business development activities even as net-debt-to-equity was well below the ceiling of 0.5x.
Godrej Properties Ltd clocked pre-sales of around ₹5,200 crore – its best ever for a second quarter – driven by sales traction in new projects, Godrej Vrikshya in the National Capital Region (NCR) and Godrej Woodside Estate in the Mumbai Metropolitan Region (MMR). With this, Godrej has achieved about 51% of its annual sales guidance for FY25. In comparison, the company has averaged 37% of its full-year sales in the first half of the year in the past five financial years.
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On the other hand, Sobha Ltd pre-sales fell year-on-year and sequentially to ₹1,178.5 crore, hurt by lower launches. The share of Bengaluru in overall bookings has fallen lately but it still contributed around 44% of overall pre-sales volumes in Q2FY25, thus exposing Sobha to concentration risk.
“New launches were muted from our coverage companies (12), excluding Godrej Properties and Prestige Estates Projects Ltd, which launched key projects in NCR, MMR, Pune and Bengaluru," said Motilal Oswal Financial Services. “Given the low inventory overhang of 11 months across the industry, new launches become critical to drive incremental growth," it said.
Prices go through the roof
Listed realty companies have a solid project pipeline, with new launches planned for the second half of year – a relatively stronger period. To shore up sales in new projects, developers may offer discounts and flexible payment schemes to attract investors. This is not entirely surprising given that realty prices have increased, potentially hurting affordability and derailing sales momentum.
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For perspective, on average, residential property prices across the top seven cities rose by 23% annually, from ₹6,800 per sq ft in Q3 2023 to ₹8,390 per sq ft in Q3 2024, according to Anarock Property Consultants. On a quarterly basis, average prices in the top seven cities rose by 4%. Plus, the high base of last year means pre-sales in H2FY25 will have to be impressive to meet or exceed full-year guidance.
Also, a recent channel check by Antique Stock Broking showed that developers, including reputed ones, are facing approval delays from multiple agencies in several markets. “Companies' ability to manoeuvre these challenges remains critical to expediting approvals, which are taking three to four times longer than usual," said the Antique report dated 8 October. Since sales momentum is linked to new project launches for most companies, regulatory challenges remain a primary risk and need to be monitored, it cautioned.
All said, the Nifty Realty Index is up 35% so far in 2024. Valuations are expensive and further upside in realty stocks is contingent on the pre-sales trajectory.
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