Real Estate Sectoral Outlook

Despite the impact of COVID-19 led disruption in 1QFY22, housing sales witnessed sharp uptick in FY22 across the residential companies. The growth of 52% was seen in FY22 from FY21 indicating continuation in housing demand momentum. Outlook for FY23 continues to remain upbeat with the management of all the companies giving robust sales growth outlook on a high base of FY22. Consolidation, which has been one of the structural trends driving the performance of Grade A developers, will continue to remain a key driver of the ongoing housing upcycle and will help Grade A developers outpacing the growth of overall industry.

Average realization across the coverage universe firmed up in FY22 largely driven by product mix change and Project level price hikes. Commodity, energy, and logistical cost inflation were the key highlights of FY22. The commodity price inflation led to an increase in cost of construction in the range of 15-20%. In order to mitigate the impact of price rise and contain margin pressure, most of the developers took calibrated price hikes in the range of 5-10% across different projects without impacting the sales velocity. FY2023 could also see price hikes depending on the project specific sales traction, to compensate for the commodity cost inflation in recent quarters.

New launches are expected to ramp up significantly, supported by reduced unsold inventory levels and steady demand. The Grade A developers have geared up to accelerate launch trajectory to benefit from the housing upcycle and the launch guidance has remained robust across the board.

The real estate developers believe that while further rate hikes <100 bps might not have a detrimental impact on the sales velocity, but any increase beyond the range might start hurting the sales velocity. India's housing market is likely to remain in upcycle over next few years driven by strong underlying demand. A key ingredient of the underlying housing upcycle will continue to be the "sector consolidation" which will benefit Grade A developers. The developers who have enough inventory or monetizable land parcels in key micro markets to keep the a launch pipeline intact for the next 2-3 years would have a significant advantage over others. 

Top Real Estate Companies:

1. DLF:

Outlook FY2023:

- Sales booking expected to grow by 10%

- Cashflow is expected to remain at the same level.

- Launch of new projects 38% of which are outside NCR (Chennai, Goa and Chandigarh).

- Progress of Capex projects.

2. LODHA:

Outlook FY2023:

- Sales booking expected to be >Rs.115billion (27% YoY)

- Cash Flow expected to grow to Rs.60billion (~50% YoY)

- Net debt to go down to <Rs.60billion

- Launches of new projects in micro-markets

- Business development progress (guidance of Rs.150 billion GDV in FY23)

- Repatriation from UK projects.

3. GPL Infrastructure:

Outlook FY2023:

- Sales booking expected to be >Rs.100billion (26% YoY)

- Cash Flow expected to grow from FY22 level

- Launches in Wadala, Ashok Nagar, Connaught Place, Hinjewadi critical for achieving the target of Rs.100 billion sales booking