Realty firms with high exposure to premium housing will fare better in Q4

Data from property consultants and apparently higher activity in the premium housing market suggest that Q4FY23 is likely to witness record pre-sales for most listed developers, analysts at Jefferies India Pvt Ltd said in a report on April 4. On a year-on-year basis, companies such as DLF Ltd, Oberoi Realty Ltd and Sobha Ltd are expected to report higher pre-sales in Q4 FY2023.

“We expect pre-sales of ~9000 crores for DLF; helped by sellout response to Arbor project. Oberoi and Sobha likely to register ~30%+ sales growth.” Worli Three Sixty West project in the east For Shobha, good performance of its Gurgaon project and premium properties in Bangalore will help, according to a Jefferies report.

In addition to the FY24 pre-sales guidance, the trajectory of new launches and comments on loans in the Q4FY23 management commentary are important watchables.

Meanwhile, the Nifty Realty index has declined nearly 17 per cent in the last one year. The interest rate hike spree by the Reserve Bank of India dampened investor sentiment towards the sector.

Apart from concerns of demand being constrained, there were concerns that the cost of borrowing for real estate developers would also go up due to higher interest rates. This is not good for those with leveraged balance sheets.

Valuations have also cooled down after the drop in share prices. “Sector valuations (PBx) are near their 10-year average after correcting almost 40% from their 2021 peak. Given sector consolidation, improved corporate balance sheets and near-term peak potential in the rising rate cycle; we believe valuations are near the bottom,” added the Jefferies report.

On Thursday, the Reserve Bank of India kept the key lending rates unchanged. While this is a positive sentiment for rate sensitive real estate stocks, downside risks remain in the form of layoffs in the IT sector.