HSBC has cautioned that India's residential real estate market may be approaching its peak, leading to reduced target prices for key developers.
The NSE Realty has fallen 23% year-to-date, significantly underperforming the Nifty 50, which has declined by 6.6%. This underperformance is attributed to macroeconomic concerns and the risk of developers missing their sales guidance. Delayed project launches and mixed performance during the third quarter of fiscal 2025 have further dampened investor confidence.
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Despite these challenges, HSBC's analysis of top-tier listed real estate developers reveals that many have achieved approximately 70% of their pre-sales guidance for the first nine months of FY25. The fourth quarter is typically strong for pre-sales, providing some optimism. However, delays in new project launches could still pose a risk to meeting annual targets.
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"Delayed launches and mixed performance of developers during 3QFY25 has not inspired confidence either. We believe the key reason for underperformance is high beta for the sector and the fact that, this time, residential sales were driven by upgrade demand which in turn was partly driven by the wealth effect created by the stock market," the brokerage noted.
HSBC has reduced its target prices for several developers, including Godrej Properties Ltd., Oberoi Realty Ltd., Prestige Estates Ltd., and Sobha Developers Ltd., while maintaining a 'buy' rating on these stocks. The report highlights early signs of a potential peak in residential sales, such as a decline in the number of units sold and a peaking average size of apartments.
The report also notes that developers have strong balance sheets and sufficient land banks to support new launches and growth. However, the economic environment and approval delays remain key risks.
While HSBC remains cautiously optimistic about the stability of the residential real estate market, it advises investors to be mindful of potential headwinds that could impact future growth.
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