HSBC sees a strong start for India's residential real estate market in 2025, with major launches expected in the first quarter, which are expected to lay the foundation for a robust pre-sales base.
However, the real test will come as the year progresses, with shifting demand towards mid-income housing and the impact of high sales growth bases.
In its latest report, HSBC said the first quarter of 2025 will witness a surge in residential project launches, as developers look to meet their pre-sales targets for financial year 2025. The weak first half of financial year 2025 was a result of approval delays, which hindered developers' ability to launch new projects. However, these hurdles are expected to ease, with some developers likely to push forward with major launches in the first quarter next year, thereby driving sales momentum.
A major focus of HSBC's note is the anticipated shift in demand patterns. After years of strong growth in luxury and high-end housing, HSBC forecasts that the market will see a pivot toward more mid-income housing. This shift is expected to impact both sales value and margins, as developers adapt to changing buyer preferences.
The shift from upgrade demand, which had previously fuelled strong sales in the luxury segment, to mid-tier housing will represent a key challenge for developers, according to HSBC.
While the residential market will continue to see demand growth in 2025, the pace may slow down due to the high sales base established over the past four years, the brokerage noted.
Residential pre-sales volumes and values have seen compound annual growth rate of 18% and 31%, respectively, from 2021 to 2024. However, with a weaker 2024, the market is expected to experience continued growth in 2025, albeit at a slower pace.
HSBC also flagged concerns about the approval cycle. If approval delays persist, developers may need to lower their financial year 2026 growth guidance, which could negatively impact investor sentiment, especially since the market remains highly focused on pre-sales performance.
Looking ahead, real estate stocks will be sensitive to interest rate cuts in 2025, with a potential for positive stock performance driven by easing rates, according to HSBC.
The brokerage expects developers to focus on scaling up their business through new launches and improving cash flow management. As leverage is relatively low within HSBC's coverage universe, developers that successfully execute new launches and improve operating efficiencies are likely to outperform.
HSBC remains positive with 'buy' ratings on Godrej Properties Ltd., DLF Ltd., and Sobha Ltd. It maintained 'hold' on Oberoi Realty.
The brokerage retained its target prices on these stocks as it expects interest rate cuts and strong new launches to support stock performance in 2025.
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