In FY23, most of the top 12 listed real estate companies posted 43% YoY growth in pre-sales, driven by an improved churn rate, which increased to 48% in FY23.
Housing sales in the first quarter of 2023 also scaled new heights, breaching the one lakh mark at 1.14 lakh units across the top 7 cities, as per ANAROCK Research.
The strong momentum in housing sales was despite rising interest rates wherein the central bank increased the repo rate by 250 bps since May 2022. Interest rates from most top banks currently hover between 8.7 to 9.65% and with the latest pause in rate hike cycle by the RBI, the home loans rates are expected to continue in single digits, sector analysts said.
The RBI’s status quo on policy rates is anticipated to have a positive impact on the real estate industry, along with the home loan financiers. While homebuyers are also equally relieved.
Also Read: RBI Policy: Brokerages see continued pause, this is when they expect the first rate cut
With hopes that interest rate has peaked, developers in the country believe a respite in home loan interest rate augurs well to propel uptick in housing sales across the segments.
“With the festive season in tailwinds, a hiatus in interest rate hike will act as a growth catalyst and boost sales velocity,” said Niranjan Hiranandani, National Vice Chairman, NAREDCO.
Low interest rates will also aid in boosting sales in the affordable housing and mid-income housing market. This segment was struggling with rising interest rates over the period.
Fence sitters in the affordable & mid segment will have greater visibility of their EMIs & thus effect buying, said Vimal Nadar, Head of Research at Colliers India.
Additionally, a slew of positive policy measures from the government has helped sustain housing sales.
Home loan financiers also expect that a stable interest rate regime going ahead will help boost demand. Real estate loan demand from both housing and commercial segments has remained robust despite a 150 bps rise in the base lending rate (MCLR) over the past year.
However, cautiousness prevails amid expectations of the complete transmission of the repo rate hikes to lending rates.
“Keeping the interest rates steady at 6.5% is in line with the expectations. We expect the same state to continue for a few more quarters. Looking at the lead indicators, it gives optimism and shows demand revival. Monsoon prediction is yet another favorable point. For home buyers, a stable interest rate is an encouraging trend,” said Viswanatha Gowd, MD & CEO of LIC Housing Finance.
Home loan borrowers now need to decide whether to opt for fixed-rate loans that may be available at a discount or stick to floating-rate loans. Fixed-rate loans come with a constant repayment amount, but have higher initial cost. Floating-rate loans offer more flexibility but if interest rates rise, they can result in higher EMIs.
Also Read: RBI monetary policy: Your home-loan EMIs won’t increase
“Fixed-rate loans may be available in the market at some discount compared to floating-rate loans. However, considering that rate cuts are expected a few quarters down the line, it makes sense to stick to floating rate loans,” said Anshul Gupta, Co-founder and Chief Investment Officer, Wint Wealth.
For the listed real estate developers, domestic brokerage Motilal Oswal Financial Services believes with the interest rate hike cycle topping out, the residential real estate cycle is unlikely to face any material headwinds and expect demand to remain healthy for at least next two-three years.
The real estate stocks have witnessed decent rise in the last one year with the Nifty Realty index rallying 23%, outperforming the benchmark Nifty that rose over 12% during the same period.
The top gainer in the realty index during one year was DLF that rallied more than 50%. The Phoenix Mills gained over 39%, Prestige Estate Projects rose 28%, while Oberoi Realty and Brigade Enterprises added around 21% each during the period of one year.
“With concerns about rising construction costs comfortably put to rest, we believe the improving product mix and sustainable price hikes by companies can translate into margin improvement, which will boost profitability,” the brokerage house said.
The absorption for top-8 cities remained at around 80,000 units for the last four to five quarters and is now expected to pick up with renewed interest from first-time homebuyers. Industry growth will also be complemented by consistent market share gains by large developers on the back of increased penetration into at least a couple of more markets, it added.
With most of the companies trading above the value of their existing pipelines, we continue to prefer players with the ability to grow faster than peers through a focused business development strategy.
Motilal Oswal has a ‘Buy’ rating on Macrotech Developers, Godrej Properties, Oberoi Realty, Prestige Estate Projects, Brigade Enterprises, Sobha Ltd, and Mahindra Lifespace Developers.
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Updated: 11 Jun 2023, 11:50 AM IST