Realty companies' Q3 to be mixed, followed by an action-packed Q4

With approval-related challenges slowly receding, sequential improvement in pre-sales or bookings is likely for most listed companies in Q3FY25. However, a high base coupled with muted launches would mar year-on-year bookings growth for those largely dependent on new projects.

Recall that seasonality and delayed approvals led to muted launches, hampering the sector’s pre-sales momentum in the half-year ending September (H1FY25). Grade A developers, particularly those with exposure to Bengaluru, such as Sobha Ltd, Prestige Estates Projects Ltd, and Brigade Enterprises Ltd, saw delays in regulatory approvals, leading to deferment of new launches.

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Sobha launched just one new project in Q3FY25 of 1.1 million square feet in Bengaluru. Its pre-sales fell 29% on-year to ₹1,388 crore but rose sequentially, showed its Q3 operational update. Prestige and Sunteck Realty Ltd are expected to see a lukewarm quarter. Prestige launched one project in Q3, while Sunteck and Kolte Patil saw no launches.

On the other hand, those with the availability of inventory for sustained sales, such as Godrej Properties Ltd, DLF Ltd, Oberoi Realty Ltd, and Brigade Enterprises Ltd, would post a good show. Plus, these companies saw new project launches.

In its Q3 update, Macrotech Developers Ltd (Lodha) said it clocked pre-sales of ₹4510 crore, up 32% on-year and 5% sequentially—its best-ever quarterly bookings. Lodha has a large number of ongoing projects, which has aided its pre-sales trajectory, although it didn't launch a new project in Q3.

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Q4 expectations

So, while Q3 may not be a very exciting quarter for real estate investors, easing supply constraints points to an action-packed March quarter (Q4FY25). “Q4FY25 is expected to see a surge in launches from Aditya Birla Real Estate, Prestige, Sobha, Godrej Properties, DLF, Brigade, Sunteck Realty, and Kolte Patil Developers," said a 1 January Antique Stock Broking Ltd report.

Thus, whether companies can meet their ambitious FY25 pre-sales targets (15-20% on-year growth) depends on how launches shape up in Q4.

Meanwhile, realty companies have been able to strengthen their balance sheets lately aided by robust cash flows and equity fundraises. This has helped a slew of listed companies to pare debt as well as expand into new geographies to contain the concentration risk.

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An analysis by Nuvama Research showed that in H1FY25 land-related capital expenditure (capex) rose to 33% versus 29% in FY24, despite higher capex spends, net debt reduced for 11 developers compared to nine in FY24. Strong demand for housing units and low inventory levels are expected to prompt developers to increase their focus on business development activities, which may keep land capex elevated in the near term.

The Nifty Realty was one of the top three best-performing indices in 2024, fetching 34% returns. Valuations have run up, making it essential for developers to deliver on pre-sales targets. A potential interest rate cut by the Reserve Bank of India could boost demand for the languishing affordable housing. However, elevated prices in the premium and luxury residential segments need monitoring amid a spate of new supply.

“Residential prices have increased by an average of around 15% on-year in 2024," said a Jefferies India report on 8 January. While pricing remains fairly co-related with inventory levels, Jeffries remains watchful, though of any substantial jump in investor activity, likely triggered by higher pricing, as the same may drive regulatory action by the central bank and/or government, added the report.