DLF Ltd., Macrotech Developers Ltd., Prestige Estates Projects Ltd., and Oberoi Realty Ltd. figure among brokerages' top picks to ride India's pent-up post-pandemic demand for residential properties.
All-India residential real estate sales across major cities in India increased 86% year-on-year to 186 million square feet in the first quarter of the current financial year, with all regions "firing up in a secular way", according to Kotak Institutional Equities.
"We note that the first quarter registered as the fourth consecutive quarter of sales above 150 million square feet, signal strong underlying demand," the note said. "With Q1 starting the year on a strong note, we expect the full-year residential sales for FY23 to surpass 700 million square feet on a conservative basis, making the year a likely record year for the sector," it said.
Among the key cities, Kotak and PropEquity's analysis showed sales momentum was the strongest in Bangalore, followed by the Mumbai Metropolitan Region and Gurugram.
"We highlight that MMR clocked its highest-ever quarterly sales of 35.7 million sq. ft in the first quarter, with the previous best being reported in the fourth quarter of fiscal 2021-22," the note said. "We also highlight that residential sales in Tier-II cities have gained weight in recent quarters, in line with the momentum seen in Tier-I cities."
Listed real estate developers in Kotak's coverage universe witnessed strong growth, with sales growing nearly three times in the first quarter over the same period last year to Rs 13,400 crore. "Prestige maintained the pole position with sales of Rs 3,000 crore, followed by Lodha with Rs 2,800 crore, Godrej with Rs 2,500 crore, and DLF with Rs 2,000 crore," Kotak said.
Sobha and Brigade also clocked strong sales of Rs 1,150 crore and Rs 800 crore, respectively. "We highlight that most players remain on track to achieve their sales targets for FY23—DLF and Lodha guided for sales of over Rs 8,000 crore and Rs 11,500 crore, respectively," it said.
Among these, Kotak's top picks were DLF, Macrotech and Prestige. "We remain constructive on the residential real estate segment, on account of the potential for further consolidation."
Property registrations grew 26% year-on-year in India's financial capital to 8,552 units in August, according to an assessment by Oswal Financial Services Ltd. and Knight Frank LLP., but fell 25% sequentially due to strong property sales in July.
"August has historically been a slow month, recording a month-on-month decline in eight out of the last 10 years," Motilal Oswal said. "While the perceived risk of rising mortgage rates still looms over housing demand, momentum in the near term is expected to be sustained with the onset of the festive season," it said.
Motilal Oswal's top picks among players with material exposure to the Mumbai market are Macrotech Developers and Oberoi Realty Ltd.
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The overhang of rising interest rates is not expected to last longer due to its limited impact on affordability, overall absorption largely at pre-Covid levels, and greater consolidation, the brokerage said.
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