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Residential: Diwali comes early

While initial expectations were for new residential launches to commence from Oct’21 to coincide with the beginning of the festive season, the waning of the second Covid wave, record low mortgage rates and strong hiring/salary growth in the IT/ITes sector has led to developers preponing many launches to Aug-Sep’21 which have seen strong buyer demand.

We expect this momentum to be carried forward into Q3FY22 (festivals of Dusshera and Diwali) and expect developers to post record sales booking numbers in H2FY22 led by new launches. We estimate that the pan-Indian residential market share for our coverage universe will grow from 25% in FY21 to 29% in FY24E. Top picks: DLF, Oberoi Realty, Brigade Enterprises, Sunteck Realty and Mahindra Lifespaces.

* Set for a cracker of a festive season: While initial expectations were for new launches to commence from second week of Oct’21, strong demand tailwinds have led to developers preponing many launches to Aug-Sep’21. Based on our channel checks and commentary from developers in our coverage universe, most new launches in Aug-Sep’21 have seen strong customer response with developers keeping pricing discipline with price hikes of 4-5% on a like-to-like basis in new phases of ongoing projects and record low mortgage rates of 6.5-7.0% for housing loans. We expect this momentum to be carried forward from Oct’21 onwards and expect developers to post record sales booking numbers in H2FY22 led by new launches.

* New project launches are seeing strong buyer demand: Strong response to new launches by leading developers in Aug-Sep21 include Godrej Properties selling Rs5.8bn of inventory at Phase 2 of its Woods, Noida project on the day of launch. Prestige Estates was able to sell over 800 plots spread over 1.7msf at Rs5,000/psf or a sale value of Rs8.5bn in Sep’21 at its “The Great Acres” project, which is part of The Prestige City project (12.8msf) in Sarjapur, Bengaluru.

Brigade has launched 12 new projects across 4msf in Aug’21 (including new phases in existing projects) at its virtual Brigade Showcase event across Bengaluru, Hyderabad and Chennai and our channel checks indicate that the company has been able to clock monthly sales of over Rs4bn each in Aug-Sep’21. Sunteck Realty has seen an encouraging response to its recent Vasind launch in eastern suburbs of MMR and we expect Rs1bn of sales bookings from this project in Q2FY22. Channel checks indicate that Mahindra Lifespaces’ recent Happinest launch in Chennai has seen sales of over 200 units with average ticket size of Rs4mn within a month of launch.

* Listed developers to see continued market share gains: We believe that owing to healthy balance sheets, access to capital and many unlisted, weaker developers being shunted out of the market, the market share of large organized developers is set to grow further in the next 2-3 years. Most developers in the listed space have aggressive launch plans from H2FY22 onwards and are looking to grow at a doubledigit sales value CAGR over the next two-three years which will lead to market share gains assuming that industry size remains stagnant (we assume that overall annual residential market sales value remains similar to FY20 levels in FY23E and FY24E).

We estimate that the pan-Indian residential market share for our coverage universe will grow from 25% in FY21 to 29% in FY24E. We believe that the old adage of “A rising tide lifts all boats” may play out in the residential space with an improved demand outlook leading to many large unlisted developers and smaller developers with few projects also looking to jump into the fray and trying to complete with Tier I developers by offering projects at lower prices in the same micro-market.

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