What are the signs of peaking that we see?
The homogeneity of sales and price growth across the top cities post pandemic is waning. HSBC Securities said in a 27 February report that while the National Capital Region (NCR) continues to do better than the others, Hyderabad’s deterioration is evident with decline in the number of units and value sold, and four consecutive quarters of declining project launches. Even Bengaluru is slowing, with two quarters of decline in units sold despite launch growth. Average apartment size is peaking in some cities. Hyderabad, Bengaluru and Ahmedabad showed moderation in the growth of apartment sizes.
What does this mean for the sector?
Home sales were driven by the demand to upgrade, which, in turn, was partly driven by the wealth effect created by the stock market. However, signs of a peak may drive caution in project additions and slower price growth, HSBC said. Strong sales in the past four years ensured there are enough receivables due from customers for developers to spend on construction. But the aggressive expansion phase by developers will see moderation. Inventory, in terms of months of unsold units, is far from worrisome. Absolute inventory levels though are beginning to rise in Bengaluru, Chennai, and NCR.
How has the Realty Index fared this year?
Post 2024, real estate stocks have come under profit booking. Nifty Realty Index has slumped 21% this year, compared with a 7% decline in the Nifty 50. On a three-month basis, not a single stock of the realty index delivered positive returns. Delayed launches and mixed performances of developers during the December quarter have not inspired confidence.
Should listed developers worry?
Top-tier listed real estate developers give few reasons to be fearful. Most of them have achieved around 70% of their pre-sales guidance in the first three quarters of FY25, and the current January-March period is typically strong for the sector. Some of the developers such as Prestige Group lagged on launches versus guidance, but that has been a sector-wide problem. Although this provides a cushion, further delay in launches exposes them to missing their pre-sales given that there is little inventory to sell.
Will Q4 salvage FY25 performance?
The residential cycle, although peaking, is still stable. After a fall in project launches in the previous quarters, Q4 is expected to see a record number of launches led by large listed developers. The spate of launches will boost sales. Most listed developers are banking heavily on launches this quarter to meet their FY25 sales targets. However, analysts believe that a gradual declining trend in sales is expected going forward, along with moderation in price growth.
With inputs from Abhishek Mukherjee
