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Demand was robust in India’s residential real estate sector in 2QFY24, and that was seen in the rise in booking values to INR 251bn (+55% YoY; +45% QoQ; for a sample of 13 listed companies). In fact, the positive momentum persisted throughout 1HFY24 (36% YoY growth in booking values to INR 424bn). Property registrations were resilient in Mumbai in Nov’23 and hit a monthly decadal high (since Nov’12), propelled by redevelopment projects. In the broader market context, the top 7 cities surpassed CY22 absorption levels in 10MCY23, driven by MMR, Pune, and Hyderabad. The supply situation also continues to be extremely favourable with steadily declining and decadal-low unsold inventory (674msf across top 7 cities: Source: Propequity). Our overall outlook remains constructive for the residential segment, buoyed by a combination of supply side consolidation, sustained demand, and potential price hikes, suggesting a multi-year housing cycle. We believe listed developers will report a strong 2HFY24 based on their launch pipelines and continued strength in the residential segment.

? Robust demand landscape; leverage not a concern: In 2QFY24, booking values across a sample of 13 listed companies came in strong at c. INR 251bn (+55% YoY; +45% QoQ; Exhibit 1) largely led by new launches. Furthermore, in 1HFY24, these companies reported 36% YoY growth in booking values (INR 424bn). Given the rapid increase in sales momentum, minimum leverage (lower than 1x net debt to equity; Exhibit 2&3), robust outlook for cash flow, and a proactive business development pipeline, we remain confident that demand for residential real estate will persist. Net debt is also currently under control; however, it is crucial to monitor interest rates as it has the potential to negatively affect demand.

? Mumbai property registrations resilient; redevelopment projects to sustain the momentum: In Nov’23, despite fewer working days due to the festive season, Mumbai recorded healthy property registrations of 10,902 (+11% YoY; down 8% MoM) and, as a result, achieved revenue of INR 7.1bn (+6% YoY; down 15% MoM), a monthly decadal high (since Nov’12). Residential registrations account for approximately 80% of the total property registrations with the INR 10mn+ ticket size segment contributing 57% (Link). There has been an uptick in the contribution from this ticket size, as in Jan-Nov’20 the segment accounted for only 51% of total property registrations. Since the Maharashtra government issued discounts on premiums paid by real estate developers for various permissions, there has been a surge in redevelopment projects, leading to an increase in property registrations (Exhibit 10).

? Top 7 cities surpass CY22 performance in 10MCY23: CY22 was an exceptional year, with 568msf of absorption (CY16-21 average: 343msf; a decadal high). However, on the back of strong demand, absorption in 10MCY23 (576msf) has already surpassed CY22 levels. This has been driven by cities like MMR (137msf), Pune (107msf) and Hyderabad (137msf). Moreover, launches continued to slightly lag absorption (534msf launched in 10MCY23) resulting in inventory reduction and possible price hikes going forward. Unsold inventory declined to 674msf as of 10MCY23 (716msf as in CY22) led by MMR, NCR and Bengaluru.

? FY24 to end on a strong note: We remain constructive on the residential segment, as the combination of i) supply side consolidation, ii) sustained demand and iii) calibrated price hikes will lead to a multi-year housing cycle. Listed developers are likely to report a strong 2HFY24 based on their launch pipelines and on the back of continued strength in the residential segment. Interest rates remain a key monitorable as we are probably at the peak of the interest rate cycle, and this could potentially impact demand.

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