The real estate sector is booming, and realty stocks are reaping the benefits, with shares of majority of the stocks rising 27-95 per cent over the last six months to date, the Nifty Realty index has surged over 43 per cent in that time.
The highest gainer over the 180 days under review is Macrotech Developers (Lodha), whose shares have nearly doubled.
There are only two laggards in the pack, Sobha Ltd and Sunteck Realty, which are bucking the trend.
Sales momentum in the residential segment is expected to be sustained, though sales were moderate sequentially in the June quarter. Pre-sales of the major listed players rose close to a fifth on year to 234 million square feet in the June quarter, while it was down 7 per cent on a sequential basis, according to Kotak Institutional Equities and an analysis of data of individual companies.
Buying by FPIs, MFs
The real estate sector has been attracting good inflows from foreign portfolio investors as well as domestic institutions in the last several months.
FPIs, who were net sellers in realty stocks for most of FY23, have reversed the trend from April onwards and become net buyers, according to research by ICICI Securities. As of July-end, their total holdings in real estate stocks were at Rs 77,500 crore. While that number is just 1.5 per cent of the total Indian equity assets in their portfolio, it has to be seen in the context that the boom in the real estate sector is of recent origin.
Mutual funds have always been actively buying in real estate stocks, though in the last couple of quarters, they have also been selling, booking profits, analyst said. They are still net buyers in real estate and in July their inflows into the sector were at 8 per cent of the total inflows into Indian equities.
In fact, mid-cap mutual fund schemes have been actively buying real estate stocks in July, with net inflows of over ₹600 crore. In the mid-cap space, Prestige Estates Projects has been a favourite, data showed.
Bengaluru-based Prestige Estates, which entered the Mumbai market about two years back, has seen unprecedented success in the city, surpassing the long-established players’ sales.
Commenting on the valuations, Kotak Institutional Equities said that most residential real estate stocks were at 3-8 times equity value to EBITDA ratio based on their projected sales in FY25.
“This reflects the strong underlying business performance as well as changing investor interest,” it said.
In the June quarter, most of the developers saw subdued launches, and this had an impact on their sales as well. Launches were down 3 per cent on year and down 11 per cent sequentially in volume.
But the festival season is just ahead, and this is when most developers have new launches while providing attractive incentives in the form of free accessories and easy payment terms.
Anuj Puri, chairman and founder, ANAROCK Consultants said that the residential momentum will continue, and he forecasted calendar 2023 to be a record year for the housing segment, with sales of 430,000 units.
Despite the increase in mortgage rates, he pointed out that the FY23 EMI-to-income ratio of 30 months was the lowest in two decades.
Going ahead, he said that launches will be dominated by large, listed players in the sector, such as Godrej Properties, Lodha and DLF, who are aiming for significant pre-sales in the current year.