In a significant development for the real estate sector, the Reserve Bank of India (RBI) has decided to maintain the repo rate at 6.5%. This decision, announced on Wednesday, does little to alleviate the burden of high home loan rates for prospective buyers. However, the softened stance of the RBI towards a neutral policy is viewed as a potential hint at forthcoming adjustments in interest rates. This announcement had a positive impact on the stock market, with the Nifty Realty index climbing by 2.5%. With the current backdrop of high borrowing costs, the business updates from various real estate firms for the September quarter (Q2FY25) present a mixed picture of performance and prospects.
For instance, Macrotech Developers Ltd, popularly known as Lodha, reported impressive Q2 pre-sales bookings of ₹4,290 crore, showing resilience despite the traditionally softer Shradh period. The company expressed confidence in achieving its fiscal year FY25 pre-sales target, anticipating growth of 20% compared to the previous year. However, it should be noted that net debt has increased by ₹600 crore sequentially, reflecting aggressive expansion efforts while maintaining a net-debt-to-equity ratio well below the threshold of 0.5x.
In a similar vein, Godrej Properties Ltd achieved remarkable pre-sales of approximately ₹5,200 crore, marking its best performance in a second quarter. This success was driven by strong demand for new projects such as Godrej Vrikshya in the National Capital Region (NCR) and Godrej Woodside Estate in the Mumbai Metropolitan Region (MMR). Notably, Godrej Properties has already accomplished around 51% of its annual sales guidance for FY25, significantly higher than its average of 37% achieved during the first half in the last five financial years.
On a more cautious note, Sobha Ltd reported a decline in pre-sales, recording ₹1,178.5 crore, affected by fewer product launches this quarter. Despite a shrinking share in bookings from Bengaluru, which still accounted for about 44% of total Q2FY25 pre-sales, Sobha is now facing concentration risks that could impact its future growth.
According to analysts at Motilal Oswal Financial Services, “New launches were subdued among our tracked companies (12), aside from Godrej Properties and Prestige Estates Projects Ltd, which initiated key projects in NCR, MMR, Pune, and Bengaluru.” They highlighted the pressing need for new launches given the industry’s low inventory levels, approximated at 11 months, essential for driving incremental growth.
Rising Prices and Market Dynamics
The listed real estate companies are gearing up with a robust project pipeline, anticipating new launches in the forthcoming second half of the year, typically a stronger period for property sales. To stimulate interest in their new offerings, developers may need to introduce attractive discounts and flexible payment plans. This strategy comes in response to escalating property prices, which could adversely affect affordability and dampen sales momentum.
Research from Anarock Property Consultants reveals that, on average, residential property prices across the top seven cities in India have surged by 23% year-on-year, up from ₹6,800 per square foot in Q3 2023 to ₹8,390 per square foot in Q3 2024. Quarterly analyses also indicate a 4% increase in average prices, highlighting the market’s upward trajectory. Given the high base of the previous year, the second half of FY25 will require exceptional pre-sales performance to meet or exceed annual sales targets.
A concerning trend noted by Antique Stock Broking is the alarming increase in the time it takes for project approvals, which is now taking three to four times longer than usual. This delay impacts developers’ ability to execute new launches, essential for maintaining sales momentum. The report underscores how critical it is for companies to navigate these approval challenges effectively, as regulatory bottlenecks pose significant risks that require close monitoring.
Overall, despite the Nifty Realty Index observing a significant increase of 35% so far in 2024, the prevailing valuations appear steep. Future upward movements in real estate stock prices may heavily depend on the trajectory of pre-sales performance over the coming months, underscoring the need for strategic planning and market adaptation.
