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According to the analysis conducted by Motilal Oswal Financial Services (MOFSL), the residential real estate sector is poised for a favourable outlook as the interest rate hike cycle reaches its apex. The report paints an optimistic picture and anticipates a sustained demand for the next two to three years, with minimal challenges on the horizon. Notably, the top-listed real estate companies had an exceptional performance in FY23, witnessing a remarkable 44 percent year-on-year growth in pre-sales during the fourth quarter, which turned out to be the best quarter for most companies. In total, the top 12 companies reported an impressive cumulative pre-sales value of Rs 748 billion in FY23, representing a substantial 43 percent year-on-year increase.
DLF, one of the most prominent companies in the industry, delivered an outstanding performance in FY23, with its pre-sales doubling to Rs 150 billion. This outstanding growth can be attributed to the fully sold-out launch of their project, "The Arbour," located in Sector 63, Gurugram, which generated bookings worth Rs 80 billion. As the financial year commenced, most of the top 10 listed real estate players had an inventory level below 12 months. This compelled them to elevate their launch activities in FY23, with the value of launches reaching an impressive Rs 740 billion, a significant surge from the Rs 390 billion recorded in FY22.
Despite the increased number of launches, the inventory overhang remained at 12 months by the end of FY23, primarily due to improved sales velocity and a better churn rate. A considerable portion of the industry's growth was propelled by strategic price hikes. With concerns about rising construction costs now alleviated, companies are focusing on optimizing their product mix and implementing sustainable price increases, thereby paving the way for margin improvement and enhanced profitability.
Furthermore, the absorption rate for the top eight cities has remained steady at 80,000 units for the past four to five quarters. However, with renewed interest from first-time homebuyers, the absorption rate is expected to experience an upturn. Moreover, large developers are poised to enhance their market share by expanding their footprint into new markets, further bolstering the growth trajectory of the industry.
Factors such as population growth, rising incomes, and increasing urbanization drive the surge in real estate growth. Investing in real estate has become highly desirable for several reasons. Firstly, it offers a stable asset that is unaffected by stock market volatility. Additionally, it often generates a consistent income stream. By 2030, the real estate sector is projected to reach a market size of US$1 trillion, a significant increase from its current value of US$200 billion in 2021. It is expected to contribute 13 percent to the country's GDP by 2025. Given its prominent role in the economy, the real estate sector must prioritize accountability for all stakeholders.
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