Realty sector preview: What to expect in Q2FY25 and beyond

The real estate sector has been a mixed bag recently, with developers witnessing varying levels of demand. As quarterly results are on the line, there's a lot to unpack in terms of market trends and earnings expectations. Let's dive into what the future holds for the realty sector in this quarter.

The Nifty Realty Index underperformed the benchmark NIFTY 50, delivering a return of -0.71% in the July to September quarter, while the benchmark NIFTY 50 rose by 7.68%.

Before discussing what to expect in Q2FY25 for the realty sector, let's first look at the top 10 realty sector stocks from market cap perspectives.

What to expect in Q2FY25?

While Q2 is generally considered a seasonally weak quarter for the realty sector, this time it might be different. Developers like Lodha and Godrej Properties (GPL) have reported impressive presales growth, with Lodha achieving a 21% YoY growth in presales, and GPL reporting a 3% YoY growth.

Why are these growth rates significant?

This year, the traditionally slow "Shraadh" period fell in September, compared to October last year. As a result, strong demand for well-priced projects continued, and the upcoming festive season is expected to further boost new project launches. Consolidation trends in key cities like Bengaluru, MMR, and Pune are expected to drive volume growth, although price movements are likely to remain muted.

How and why are developers strengthening their balance sheets?

Developers are reinforcing their balance sheets. Grade A developers have secured funding, which provides liquidity, reduces high-cost debt, and enables them to focus on long-term projects. This is crucial as they need financial support to meet the rising demand for both residential and commercial spaces.

Is commercial real estate recovering?

Yes, there has been a noticeable recovery in commercial real estate, particularly in cities like Bengaluru, Hyderabad, and MMR. Large IT companies are bringing more employees back to offices, driving increased demand. Physical occupancy rates have exceeded 80% in some areas, and premium office buildings are yielding higher rental income. The commercial real estate market is expected to grow steadily.

How Is retail consumption impacting the sector?

Retail consumption has picked up due to easing inflationary pressures and rising disposable incomes. This is a positive trend for developers focusing on commercial and mixed-use properties, further boosting the real estate cycle.

Emerging regional trends

• Southern Cities (Bengaluru, Hyderabad, Chennai): Strong growth is expected in both residential and commercial sectors, driven by the IT boom and improved infrastructure. Bengaluru remains the top destination for office spaces and luxury housing, while Hyderabad is gaining attention for its affordable properties and favourable government policies.
• Northern Region: Demand remains cautious due to regulatory hurdles and slower infrastructure development.
• Western Region: Robust demand is seen in both the mid and luxury housing segments.

What are the earnings expectations?

For Q2FY25, revenue and EBITDA are expected to grow in the mid-twenties, though margins may slightly decline. Profitability trends remain positive for developers.

Stocks to keep on your radar

• Oberoi Realty: With limited competition in the premium segment and several upcoming launches in H2FY25.
• DLF: A strong pick for those focused on the NCR market and the recovery in commercial office space.
• Sobha and Prestige Estates: Positioned well to benefit from the ongoing real estate upcycle in Southern markets.