Real estate stocks strategy: Do not cash out fully, say analysts

residential sales across the top seven cities (National Capital Region, Mumbai Metropolitan Region, Bengaluru, Pune, Hyderabad, Chennai and Kolkata) slipped 8 per cent quarter-on-quarter in Q1-FY25

Real estate stocks strategy: The recent blip in housing sales on a quarter-on-quarter (QoQ) basis should not worry investors in these stocks, suggest analysts, as the long-term prospects of real estate stocks remain on a strong foundation.

In the first half of calendar year 2024 (H1-CY24), realty stocks surged up to 104 per cent. This sharp run, suggested Deepak Jasani, head of retail research at HDFC Securities, should be used to book partial profit in related stocks.  

“The first leg of the bull-run in the real estate stocks may be nearing its end, and partial profit booking may be considered. Long-term growth drivers, however, remain intact and the stocks will remain on a gradual uptrend. Investors should not completely exit the pack,” he added.

The Nifty Real Estate index was one of the top performing indices on the bourses during the first half of calendar year 2024 (H1-CY24). As against the Nifty50's 10.5 per cent rise, the gauge of real estate players soared 41 per cent on the National Stock Exchange (NSE).

Among individual stocks, Sobha jumped 104 per cent, Prestige Estates 60.5 per cent, The Phoenix Mills 60 per cent, Godrej Properties 59 per cent, and Brigade Enterprises 50 per cent during the period, ACE Equity data shows. Other real estate stocks advanced between 10 per cent and 47 per cent on the NSE.

The surge in the stock prices of real estate companies came as companies witnessed strong demand undercurrents, especially in the luxury segment, amid new launches, muted price rise, and steady interest rates.

According to reports, listed real estate players sold an area of over 100 million square feet in the previous financial year of 2023-24 (FY24), aggregating over Rs 1.1 trillion. This was around 40 per cent higher over the previous year.

While this value was expected to surpass Rs 1.5 trillion in FY25, early indications show housing sales moderated in high single digits in the first quarter of this financial year (Q1-FY25).

Housing sales moderate

According to ANAROCK, residential sales across the top seven cities (National Capital Region, Mumbai Metropolitan Region, Bengaluru, Pune, Hyderabad, Chennai and Kolkata) slipped 8 per cent quarter-on-quarter (Q-o-Q) in Q1-FY25 on rising property prices.

Housing sales, according to the ANAROCK report, slipped from 130,170 units in Q4-FY24 to 120,340 units in Q1-FY25. Top seven cities accounted for over 52 per cent of the total sales with over 62,685 units sold together.

Financially, three of the eight listed firms (Sobha, Mahindra Lifespaces, and Prestige Estate Projects) missed Bloomberg’s earnings estimate in the March quarter of FY24. Oberoi Realty, on the other hand, reported in-line net sales and better-than-anticipated net profit.

The developments, said Atul Parakh, chief executive officer of Bigul (fintech arm of Bonanza Portfolio), hinted the real estate sector may show signs of headwinds in the short-term.

"A cautious approach in the near-term, coupled with a focus on quality stocks for long-term growth, is advisable," he added.

That said, the long-term growth story in the real estate sector, analysts believe, remains intact amid the government's push towards capital expenditure programs, such as the construction of the Noida International Airport, Navi Mumbai International Airport, the Mumbai Trans Harbour Link, the Delhi-Mumbai Industrial Corridor, and the Bharatmala project.

This infrastructure growth, combined with rising urban income, and interest rate cuts in future, analysts said, support the continued strength of the real estate players.

Investors, said Anirudh Garg, partner and fund manager at Invasset, should consider maintaining their positions in real estate stocks for long-term, focusing on quality developers with strong track records.