Real estate hasn’t found its footing yet

Recently, this parameter has been softening. On a pan-India basis, the pace of realty launches was subdued in January. Citing data from PropEquity, Nuwama Research said in a report that across the top seven cities in India, total launches were down 6% month-on-month and 33% year-on-year in January.

In absolute terms, month-on-month, Hyderabad saw the biggest drop in launches, followed by Pune, Kolkata, Bengaluru and Mumbai Metropolitan Region. On the other hand, the National Capital Region saw a sharp jump in new launches in January, followed by Chennai.

“Launches were slow sequentially in Q3. However, on a 9MFY23 basis, launches across companies (Lodha, DLF, Brigade Enterprises, Shobha, Godrej Properties) under our coverage stood at 24.3 million sq ft (MSF), well above 27 MSF in full FY22 piled up,” said Mohit Agarwal, analyst, IIFL Securities Ltd.

Some launches have been delayed due to approval issues, and there is still some ground to cover before the end of the year, so the pace of launches may pick up in February-March, he said.

It should be noted that Q4 is a seasonally strong quarter for the sector. And there are multiple launches scheduled for the current quarter by several listed real estate firms across various locations.

Recently, DLF Limited launched its new luxury project in Gurgaon. Oberoi Realty Ltd’s Thane project (Kolshet Road) is also scheduled to launch in Q4. Macrotech Developers Limited (Lodha) has launched slates for Mumbai and Pune. Prestige Estates & Projects Limited is also gearing up for its flagship market launches of Bengaluru and Hyderabad in this quarter.

What’s more, the pace of new launches will depend on the inventory for all developers. Vivek Rathi, research director at property consultancy Knight Frank India, said, “In our recent channel investigations, we have observed that select metros have seen a modest rise in inventory levels after several months of decline.” Although it is not related yet. Given the likely constraints from rising home loan rates, Rathi said, developers would be waiting to liquidate the existing inventory before launching new ones.

This outlook is not entirely surprising as systemic lending rates continue to move north, increasing the cost of borrowing for developers. For now, “healthy demand is leading to improving profitability for realty developers (cash operating surplus around 35% during 9MFY23 as compared to 31% in FY22),” Nuwama analysts said in another report. .

But investors in real estate stocks are in a gloomy mood. Rising interest rates are a disappointment as the cost of borrowing increases, and this is a potential downside risk to housing demand. Reflecting this concern, in the calendar year 2020, so far, the Nifty Realty index is down nearly 12%. While it is difficult to predict how much further correction realty stocks may see, there could be, at least, a meaningful bounce till the specter of interest rate hike is completely out. Not likely.

Note that in this financial year so far, developers have managed to absorb marginal price hikes in select categories. However, if there is a further increase in the prices then it may affect the sentiment of the buyers.