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India’s Real Estate sector continues to move from strength to strength, and we believe the sector will continue its upward march in CY24 as well. The residential segment remains buoyant (21% YoY growth), with absorption levels at a decadal high across the top 7 cities (687msf in CY23E; JMFe and Propequity). There has been a shift towards premiumisation, as growth was led by accelerating demand in the mid and premium segments (INR 10mn+). The demand-supply scenario is healthy directionally and we expect CY24 pre-sales to grow at 14- 15% YoY, keeping inventory levels in check. The commercial segment has witnessed a mixed CY23 with healthy absorption levels (39.7msf) offset by expiries led by the IT/IeS sector and elevated levels of completions (46.0msf). However, we believe there are signs for a strong recovery starting H2CY24 led by demand from GCCs and increasing work-from-office trends. The retail segment is also likely to do well in CY24 due to limited Grade-A supply. In summary, buoyed by the robust performance across segments, and underpinned by strong market fundamentals, India’s Real Estate sector is poised for a promising CY24.

* Residential segment to finish CY23 on a strong note; demand remains undeterred: Our analysis of data from Propequity and Anarock indicates that the residential demand has been resilient, with pre-sales recording new decadal highs. We estimate absorption to come in at 687msf (+21% YoY) in CY23, largely led by Hyderabad (167msf; +31% YoY), NCR (80msf; +27% YoY) and Bengaluru (102msf; +20%YoY). Mumbai property registrations rose by 4% YoY to 126,965 units in CY23 (Source: IGR). Data from Anarock indicates a similar trend with new bookings at 476,530 units, implying a 31% YoY growth. As indicated in our previous report (Link), the mid and premium categories continued to outperform the affordable segment in sales growth across all 7 cities.

* New launches to drive pre-sales for the listed (Tier 1) developers: The industry continues to consolidate with market sales volumes steadily shifting towards the organised segment. The launch momentum has sustained in 3QFY24 and is expected to continue in FY24E as well. DLF has launched its new luxury project ‘DLF Privana South’ in Sectors 76 & 77, Gurugram, and has achieved sales of c. INR 72bn (Link). Some of the other launches that saw a good response from buyers were i) Godrej Aristocrat in Gurugram (pre-sales = INR 26bn) (Link), ii) Lodha Mirabelle, first project of Macrotech Developers in Bengaluru (located near Manyata Tech Park), iii) Oberoi Realty’s entry into Thane with the launch of Forest Ville (located in Kolshet) and iv) The Prestige City Hyderabad (12.61msf launched in 3QFY24). Cumulatively, ~725 acres of land has been acquired in the JanNov’23 period for future residential developments, which will in turn, help to maintain a robust launch pipeline (Source: JLL).

* Steady demand for Grade-A retail spaces: We expect Phoenix Mills to do well as trading occupancies ramp up at the new malls – Phoenix Mall of Asia and Phoenix Mall of the Millennium. However, on a same-store basis, we expect Nexus REIT to perform better than Phoenix. Looking forward into FY25E, consumption growth should continue albeit at a slower pace, due to base effect of FY24E. The retail market is expected to take-up area of ~18.3msf in the CY24E-26E period, indicating a strong demand trajectory for retail spaces (Source: JLL). We like both Phoenix Mills and Nexus REIT in this segment.

* Broad-based recovery on the cards for commercial segment: As per the latest data on the commercial office sector by property consultant Cushman and Wakefield, i) Overall vacancies were flat at 18.0% in 3QFY24 (17.9% in 2QFY24), and ii) Quoted rents in 3QFY24 grew at c. 4% YoY across Grade-A properties. Across the top 7 cities, net absorption in CY23 was recorded at 39.7msf (+13% YoY) led by Bengaluru (30% share), Hyderabad (19%) and Pune (14%). Leasing activity is expected to get a further leg-up in the next 6-9 months on account of i) clarity on SEZ area (partial denotification), ii) increasing work-from-office trends, and iii) India remaining the most favoured offshoring destination. In our coverage universe, Mindspace REIT and Brookfield REIT both look attractive from a ‘total returns’ perspective

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