January 30th, 2024
Listed real estate developers are set to gain higher market share riding the momentum in the sector that is expected to remain for at least three to four years on account of existing demand-supply balance, low inventory, favourable affordability, and gradual price hikes, according to a Motilal Oswal report.
“Top 12 listed players are expected to report 46 percent pre-sales growth in CY23 versus industry growth of 20 percent if we consider the average of pre-sales growth estimates by various property consultants. The bulk of growth was driven by DLF as its two luxury projects were sold out in CY23. Excluding DLF, growth stood at 35 percent YoY, which was still materially higher than industry growth,” the brokerage's report said.
Over the calendar years 2019-2023, listed real estate players outperformed industry growth in terms of bookings by 1.4 times, resulting in a consistent increase in their market share to 16.5 percent from 12 percent, it said.
It said that most of the listed developers have a robust launch pipeline and are targeting at least two new markets, apart from their home markets, which will lead to a further pick up in the market share of listed peers.
For instance, Oberoi Realty’s core market is Mumbai but they are now venturing into Gurugram real estate. Similarly, SOBHA group is also deepening its presence in NCR, Hyderabad and Pune whereas its core market is Bengaluru.
“We retain our BUY rating on LODHA, GPL, PEPL, SOBHA, and BRGD and maintain Neutral on DLF and OBER. PEPL, SOBHA, GPL and Sunteck are our top picks,” the report said.
Observing that the share of the affordable segment decreased to 29 percent in CY23, it said the decline in interest rates will lead to a revival in affordable housing demand. Further, the government is expected to provide incentives for affordable housing, which would be a key positive trigger, it said.
Absorptions in Mumbai Metropolitan Region (MMR) and Pune at 87,000 units and 49,000 units respectively, have exceeded the previous cycle’s peak. However, markets like Bengaluru and Chennai are yet to unlock their full potential, given a strong commercial cycle seen in CY15-19. The National Capital Region (NCR) will also witness a further uptick in demand once Noida sees a revival in supply, the brokerage firm stated.
The report anticipated that on the macro front, the rise in per capita income above $3,500 ($2,400 as of CY23) would be a key trigger for the increase in homeownership as seen in China between CY2008 and CY2015. These factors could build a sustainable uptick in demand over the next three-four years.
“Inventory is yet to see a major uptick, while prices have increased by 14 percent on an absolute basis in the last two years versus 25-70 percent in the previous two cycles, indicating that the sector is in the middle of an upcycle. We believe that the existing demand-supply balance, low inventory, favourable affordability, and gradual price hikes should keep the momentum intact for at least three to four years,” the report said.
The United Nations estimates that over 400 million people are likely to reside in Indian cities by 2030. Rising income, favourable affordability, and rapid urbanisation will continue to fuel housing demand in the urban and metropolitan regions, the report said.
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