Realty shares zoom, but what lies ahead?

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Nifty realty has zoomed 10% in the last one month. DLF, India’s largest realty compaany, reported impressive results. Its quarterly profit increased 40.62% (Y0Y) to come at Rs 570.01 cr in Q4FY23. The situation of the whole sector is quite bullish. There are various factors but in short, we can say that past results as well as future outlook both are positive.  Not only DLF, other shares in the realty basket have also performed well. Godrej Properties has risen  close to 9% and Oberoi Realty has risen 6% in the last one month.

As per Anarock housing sales have increased 48% (YoY) in the last FY. It came close to Rs 3.64 lakh crore. Even in volume terms,  sales increased by 36%. Nuvama stated in its report that inventories have fallen to 13 months in FY23 from 24 months in FY20 (pre-covid time), which means it takes 13 months to sell all houses if no new house is built. The reason being demand has increased more quickly than supply. 

Still, as per the thumb rule, if inventory is above eigth months then there is enough supply and it is a buyer’s market. Nuvama also added that most of the listed companies witnessed double-digit growth in pre-sales.

Luxury segment driving growth

Growth in the luxury segment has been very impressive, CBRE report stated that in the January-March quarter this year luxury housing sales increased 151% (YoY). Experts perceive that this is due to higher aspirations and the need for more spacious homes after covid. However, K-shaped recovery could also be a big factor. Well-off people are in a way better situation hence they can afford new houses. This phenomenon is visible in other sectors also across the economy. 

Industry experts feel that growth will be very good in houses above Rs 1.5 crore. Various new projects are being launched in this space. Overall whole real estate business is buzzing. In another report of Anarock, there were 87 land deals in FY23, while in FY22 there were 44 deals. 

Growth outlook

Large developers have realised growth prospects and that’s why they are reportedly looking to expand in tier -2 cities. They may come up with joint projects in association with local developers in those cities. 

Growth in the luxury segment may trickle down in other housing segments also as interest rates have peaked and inflation is cooling. So, gradually when people will realize that their purchasing power has increased demand in other housing segments may also shoot up.