- Stocks of top developers ran up by over 40%, and a few even doubled in the last three months.
- At these prices, most of the real estate sector’s upcycle has been priced in, say experts.
- With good land banks, and new launches most large players are expanding business, but investors are advised to wait for better entry points.
Stocks of top developers ran up by over 40%, with a few outliers like
“Developer stocks doubled in 2023 taking the sector to peak multiples. Expectations are high and easy scaleup is now behind,” said a report by
CLSA also downgraded top stocks like DLF, Prestige and Sobha as it believes the upcycle has priced in after the recent run-up.
“Property stocks have gone up sharply over the past three months and our reverse DCF valuation implies very high growth built into current prices, which we believe will be difficult to achieve considering cyclicality,” it said in its recent report.
There could be another trigger ahead with a possible affordable housing push announced in the upcoming Union Budget, as well as news of new launches by developers. “We believe the resultant growth from such events is already built into our estimates. We thus expect stocks to consolidate in 2024,” CLSA said.
Real estate sector returns
Double-digit demand but will cool off 2023’s highs
The Indian residential market is in the middle of an upcycle. In the last three years, home sale volumes have doubled. In 2023, volumes surged around 25%. Consumer demand is expected to be robust in 2024, and companies are poised for growth with. But the sector might not be able to replicate the growth rate seen in the last two years.
“A seven-year long weak phase for the residential market implies significant headroom for vols to rise in the medium term. As the housing upturn enters its fourth year in 2024, vols growth should cool down but still post around 10% year-on-year growth,” says Jefferies.
CLSA also pegs housing demand to grow at 12% in 2024. It also believes that the large players will be able to post post industry-beating growth rates of 15-20%. That’s because the top-end of the residential real estate market, in particular, has been racing ahead.
Recently, DLF was able to offload 1,137 apartments in its Gurgaon project within three days. They carried a price tag of ₹7 apiece.
In line with the demand growth, most developers had accelerated their inventory addition. Godrej added ₹32,000 crore worth of gross development value (GDV) in FY23 against the guidance of ₹15,000 crore.
As of FY24, most of these players are also expected to add to their land banks. “With robust balance sheets, low cost of capital and strong brands, organized players are at an advantage in adding new business development and are positioned for further market share gains,” said HDFC Securities Institutional Research.
But this growth also brings up the pace of unsold inventory worries that had dogged the players for a long time before the upcycle set in. “While sales growth was strong, the volume of launches exceeded that of sales causing unsold inventory levels to rise by 5% YoY. And as overall market traction has shifted toward the mid and premium segments, so has that of the unsold inventory,” said CLSA.
With more sales on the horizon and sharp uptick in construction activities, the sector is all set to see good cash flow gains through 2024. The fundamentals are all in place, but investors have to wait for better entry points into these stocks, advise analysts.