After Reaching for the Sky, Realty Stocks Trip on Ground Realities
Realty Stocks’ Hype Fades Away
The buzz surrounding the realty sector has come to an abrupt halt. After a record-breaking performance in 2022 and 2023, realty stocks have failed to deliver in the first two months of 2025, leaving investors reeling. The fiasco is largely attributed to a year-on-year decline in sales volume, particularly in the Bengaluru and Hyderabad markets, and weaker new launches due to project approval delays.
The Ground Reality Check
So, what exactly is driving this unexpected slump in the realty sector? In the September-December quarter, the sales volume of residential real estate plummeted by 8% year-on-year to 256.3 million square feet, while new launches dropped by a staggering 35% to 184.5 million sq ft. On a sequential basis, sales volume grew by 10%, but this was largely due to the festive season.
Regional Variations
Interestingly, the National Capital Region (NCR) reported a 31% jump in volume, bucking the trend. Other regions, however, experienced a decline, with Hyderabad and Bengaluru recording a 38% and 12% drop, respectively. Mumbai Metropolitan Region also witnessed a 27% fall.
Property Prices: The Silver Lining
While the realty sector is reeling from the sales volume and new launches slump, property prices have remained buoyant across all regions, with a 15% year-on-year growth in all-India average property price. NCR reported the highest price increase at 24%.
A Word of Caution
According to India Ratings and Research (Ind-Ra), the slowdown in pre-sales was largely related to one-off events and approval-related issues, particularly in Bengaluru. Analysts believe that the sector will need to address these issues to get back on track.
Bright Spots: The Exceptions
Despite the overall gloom, some realty companies have bucked the trend, reporting strong growth in the December quarter. Macrotech Developers, which owns the Lodha brand, Godrej Properties, Oberoi Realty, and Sobha, are among the top performers.
Collection Efficiency: A Silver Lining
The majority of companies reported higher collection efficiency during the quarter, with the peer set aggregate collections growing 26% year-on-year. Collection efficiency improved to 75% in the nine months to December, up from 64% in the corresponding period of the previous year.
Looking Ahead: The Way Forward
For the March quarter, the realty companies will need to find innovative ways to drive sales and new launches, as it may be difficult to replicate the stronger sales volumes of the year-ago quarter. As such, overall pre-sales value for the fiscal year 2025 is expected to moderate.
Expert Insights
"At the moment, the realty sector is facing challenges, but we believe that certain companies like DLF will continue to show resilience. DLF’s new launches and existing land bank will drive growth visibility. We maintain our ‘buy’ call on the stock with a revised target price of ₹954." – Motilal Oswal Financial Services
As the realty sector navigates the choppy waters, it is essential to separate the wheat from the chaff. While the situation appears bleak, we believe that certain players will continue to deliver. Will you be able to spot the bright spots and make the most of this narrative?
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