22 Feb , 2022 By : monika singh
Real estate developer sales are likely to continue to be robust in the current year 2022, defying interest rate apprehensions. A potentially imminent turn in the interest rate cycle has caused edginess among investors, raising concerns of a fallout on recovery in housing demand. However, brokerage firm Edelweiss is bullish on the sector – it says that buoyancy in sales would sustain 2022 driven by improving launches, diversification and market share gains. “We stay positive on property stocks from a medium-term perspective. DLF and Sobha remain our top picks,” the brokerage firm said in its report. Nifty Realty index was down 1.38% on Tuesday.
Housing demand shot up 32% on-year in 2021 and organised developers delivered strong sales growth. COVID-19 has been a big real estate disruptor and accelerated housing demand conversion. Stamp duty cuts, developer discounts, high attrition and resultant hikes, democratization of ESOPs to cover a broader employee spectrum, achievement of accelerated unicorn status, and stock market rally also fueled the demand. All-time low mortgage rates and all-time high affordability provided further support.
However, their performance could have been even better if all the planned launches had gone through, according to analysts at Edelweiss. Going ahead, the launch trajectory is expected to gather traction with major developers such as DLF, GPL, Prestige Estates (PEPL), Lodha and Sobha looking to step up launches. “Our channel checks suggest GPL has either already launched or is in advanced stages of launching a total of seven–eight projects in Q4FY22,” said the analysts.
According to the brokerage report, major realty developers such as PEPL, Oberoi Realty, Sobha and Lodha are looking to expand their geographical footprint in an effort to reduce concentration risks. Meanwhile, developers including DLF and Sunteck are expanding product offerings to capture a larger pie of the opportunity.
“Clearly, industry consolidation and market share gains for organised developers are at play,” it said. Last year, the top-10 developers accounted for more than 50% of overall launches in the NCR, Chennai and Kolkata. In terms of demand too, the share of organised developers has improved considerably. Going forward, market share gainers are expected to push growth in the sector.
The brokerage has remained constructive on residential real estate space over the past few years driven by factors such as improving affordability, falling inventory levels and industry consolidation. The pandemic and government sops to the realty space during the pandemic also provided a tailwind to the housing segment which led to fence-sitters finally taking a plunge. This resulted in a robust performance last year with absorption across top-7 cities shooting up 32% on-year.
Though it was looking positive for listed realty developers, investors have now started fretting about the potentially imminent turn in the interest rate cycle and its impact on housing demand. While Edelweiss acknowledges these concerns and their impact on valuations of realty stocks, it remains bullish on listed realty developers, and believes they would continue to churn out robust performance on the back of improvement in launches ahead, diversification; and industry consolidation. “These three factors would drive continued market share gains for organised developers,” it said.
The recent correction in realty stocks has made them attractive from a medium-term perspective, according to the report. Land bank owners such as DLF and Sobha remain Edelweiss’ top picks. It upgraded Godrej Properties to ‘BUY’ from ‘HOLD’ with the target price unchanged at Rs 1,875. “We believe its valuation has become attractive in the wake of recent correction”, it said.
DLF: Target – Rs 476
Godrej Properties: Target – Rs 1,875
Sobha: Target – Rs 1,130
Target prices for Edelweiss coverage stocks
The brokerage firm further stated that pickup in launch trajectory, should boost sales trajectory going forward, while the decision to not proceed with the DB Realty deal should allay investor concerns about capital allocation.
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