Equity investors have seen remarkable returns from real estate stocks in the current calendar year. While the BSE Sensex, the benchmark equity index, has risen 14 per cent in 2023, the BSE Realty index has witnessed a substantial surge of 69 per cent YTD till December 5.
As far as top gainers are concerned, Prestige Estate Projects gained 133 per cent to Rs 1,077.15 apiece on December 5 from Rs 463.15 on December 30, 2022. Brigade Enterprises (up 87 per cent), DLF (up 73 per cent) also outdid the BSE Realty index.
Macrotech Developers, Sobha, Oberoi Realty, The Phoenix Mills, Godrej Properties and Mahindra Lifespace Developers also rallied somewhere between 49 per cent and 67 per cent during the period. On the other hand, Indiabulls Real Estate gained just 1 per cent in 2023.
According to ICICI Securities, BSE Realty Index has risen sharply in 2023 as concerns over rising mortgage rates impacting demand have been addressed by all companies under their coverage which clocked record residential sales bookings in FY23 (up 43 per cent YoY in value terms) and momentum sustained in H1FY24 in spite of the absence of big-ticket launches by most developers.
“Companies under coverage have a large launch pipeline for festive season and H2FY24. Hence, we estimate pan Indian residential market share to grow from 24 per cent in FY23 to 28 per cent in FY25 led by sales booking CAGR of 13.8 per cent over FY23-25. With developers following pricing discipline and aligning price increases in line with inflation/salary hikes (5-7 per cent) while reining in debt levels, any downward revision in mortgage rates may boost demand further,” ICICI Securities said in a report.
There are expectations that the RBI-MPC will keep the benchmark repo rate unchanged at 6.50 per cent. The three-day meeting of the RBI’s rate-setting panel started on Wednesday, December 6 and the outcome is due on Friday, December 8.
Suman Chowdhury, Chief Economist and Head-Research, Acuité Ratings & Research said, “RBI-MPC will keep the repo rate unaltered. It’s also unlikely that there will be any revision in the monetary policy stance of ‘Withdrawal of accommodation’.”
Madhusudan Sharma, Executive Director, Bharat Housing Network said, “The RBI is likely to keep interest rates unchanged in its upcoming monetary policy review as inflation is in control. The central bank would want to support the GDP growth which is picking up momentum. This favourable stance could bode well for the housing sector as well, where we anticipate continued strong demand for home loans across segments. Additionally, the sector will also get a boost from expected supportive policy measures particularly in rural and semi-urban areas.”
Notwithstanding the sharp rally in real estate stocks, ICICI Securities remained positive on residential space over FY24-25. The brokerage has ‘Add’ rating on DLF and ‘Buy’ call on Brigade Enterprises, Mahindra Lifespaces, Sobha and Sunteck Realty.
Earlier, mortgage rates offered by most large lenders up to March 2022 were in the range of 6.5-7 per cent 20-year housing loans and were the lowest ever historically since 2005. Rate hikes in FY23 globally and in India have led to large lenders increasing home loan mortgage rates by 240-250 bps from 6.7 per cent to 9.2-9.3 per cent. This translates to an 18-22 per cent higher monthly EMI outgo for new home buyers over 20-year loan tenure. At the same time, residential prices have also risen by 10 per cent over the last 15 months.
“We believe that this may not significantly impact demand as overall affordability levels as per HDFC Limited, remain healthy at 3.3 times annual income, the best in the last 25 years. Even assuming that mortgage rates may rise by another 25-50 basis points in FY24 (up to Mar’24), we believe that developers would look to provide incentives such as builder subvention for a limited period of 2-3 years,” ICICI Securities said.
