Brokerage firm Motilal Oswal Financial Services maintains its constructive outlook on the real estate sector and prefers players with high pre-sales growth potential as it believes the interest rate would unlikely be a dampener while the demand momentum sustains.
The brokerage firm highlighted that inventories across most of the companies under its coverage universe have declined to below 12 months as absorptions have exceeded launches over the last six quarters.
The brokerage firm expects launches for its coverage universe to pick up in 4QFY23 to a multi-quarter high leading to 42 percent year-on-year (YoY) growth in pre-sales.
"We expect our coverage to report 42 percent YoY growth in presales in 4QFY23 propelled by over three-fold jump in DLF’s sales. Excluding DLF, sales would grow at 4 percent YoY," said Motilal Oswal.
"Operational update reported by a few companies indicates a pre-sales growth of 12 percent and 11 percent YoY in 4QFY23 and FY23 respectively," said the brokerage firm.
The brokerage firm said demand in the top eight cities has sustained at nearly 80,000 units in 4QFY23. Further, with a surprise pause by the RBI, the interest rate will unlikely be a dampener on demand from hereon.
"With a surprise pause in rate hikes by the RBI in its Apr’23 policy meeting, our economist believes that the probability of any further rate hikes is minimal and we might even witness a rate cut from late-CY23. Thus, interest rate hikes are unlikely to be a dampener from hereon," said the brokerage firm.
"While MMR (Mumbai Metropolitan Region), Pune and Hyderabad have posted an increase in inventories, overhang continues to remain under control at 18 months for the top eight cities. Hence, the industry will continue to witness gradual price hikes," said the brokerage firm.
With a decline in interest rates, sustained affordability and gradual price hikes, the brokerage firm expects the industry growth to be back on track. "We forecast the industry to report at least 5-10 percent growth in 2023 and beyond," said Motilal Oswal.
With a scale-up in new launches from FY24 onwards and a specific focus on expanding into at least two more markets, the brokerage firm expects the pre-sales growth to sustain at least at 15-20 percent over the next two-three years.
"Since affordability has sustained at healthy levels and inventory overhang still remains at a comfortable range, we expect gradual price hikes to continue. Hence, we reiterate our constructive outlook on the sector. We prefer Macrotech Developers (Lodha), Prestige Estates Projects and Godrej Properties within our coverage universe," said Motilal Oswal.
Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.
