According to Motilal Oswal Financial Services (MOFSL) with the interest rate hike cycle topping out, the residential real estate cycle is unlikely to face any material headwinds and expects demand to remain healthy for at least the next two-three years.
The top listed real estate companies ended FY23 on a high note as they delivered 44% YoY growth in pre-sales in 4QFY23 to INR261b, with 4Q turning out to be the best quarter for most of the companies.
Top-12 companies cumulatively reported INR748b in pre-sales in FY23, up 43% YoY. Among companies, DLF delivered a standout performance in FY23 as its pre-sales doubled YoY to INR150b on account of INR80b of bookings from its project launch (The Arbour) in Sector 63, Gurugram, which was fully sold out.
At the beginning of FY23, inventory for most of the top-10 listed real estate players was below 12 months, which compelled them to scale up the launches in FY23 to INR740b from INR390b in FY22.
Despite higher launches, the inventory overhang remained at 12 months at the end of FY23 for most of the companies due to a better churn rate and improved sales velocity. A large part of growth was primarily driven by price hikes. With concerns about rising construction costs comfortably put to rest, the improving product mix and sustainable price hikes by companies can translate into margin improvement, which will boost profitability.
The absorption for top-8 cities remained at 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 more markets.
