Indian Housing Market Soars: Jefferies Forecasts Continued Growth

Indian Housing Market Soars: Jefferies Forecasts Continued Growth

VoM News Desk | January 10, 2024 | 10:35 AM IST | Breaking News | Follow on Google News

Indian Housing Market Soars: Jefferies Forecasts Continued Growth/Mint

Indian Housing Market Soars: Jefferies Forecasts Continued Growth

Jefferies, a foreign brokerage firm, reported a remarkable 25% year-on-year surge in Indian housing market volumes in 2023, marking a doubling in just three years. This surge in residential real estate demand is predicted to maintain its positive trajectory, signaling a significant turnaround following a prolonged seven-year weak phase.

Anticipating robust growth potential in the medium term, Jefferies expects housing volume growth to continue at a rate of 10%, despite a potential moderation in pace. The housing upswing has predominantly favored premium segments, witnessing a 14 percentage point rise since 2019, while the affordable segment faced challenges due to increased interest rates and income losses. However, Jefferies predicts a potential reversal, expecting lower mortgage rates in the latter half of CY24, which could positively impact the market.

Furthermore, the reintroduction of the interest subvention scheme by the government (expected guidelines in the Feb24 budget) might serve as a catalyst for demand redirection towards mid-range or affordable housing options in 2024, according to Jefferies’ report.

The brokerage highlighted that inventory currently stands at cyclical lows, reflecting a supply scarcity of 17 months, potentially driving strong pricing gains of around 10% in 2024. However, it emphasized the necessity of measured price hikes to sustain the residential cycle, as excessive increases might deter end-users due to reduced affordability and lower-quality supply. Such sharp price escalations could also prompt regulatory actions, a risk that Jefferies remains cautious about, considering recent tightening in consumer lending regulations by the RBI.

Developer sentiment is witnessing a revival, aligning with market optimism and potential industry consolidation. Despite robust cash flow expectations throughout 2024, intensified competition and elevated pricing could subject land deal economics to closer scrutiny.

However, Jefferies cautioned that developers have minimal room for error, especially as valuations for real estate stocks, marked by a 127% Nifty Realty index rally since March 2023, are currently at their peak levels. Amid high expectations, developers need to maintain growth momentum and discipline to avoid potential market disappointments.

Regarding specific stocks, Jefferies adjusted its recommendations, downgrading Prestige Estate Projects to ‘Underperform’ and Sobha to ‘Hold’, while expressing optimism about Mindspace Business Parks REIT, which was upgraded to ‘Buy’ with a target price of ₹365.

In the office space, while leasing activities have shown an uptick, vacancy levels remain relatively higher than pre-COVID times. Jefferies believes relaxed SEZ rules could enhance flexibility for large office tenants, with rental upticks expected mostly in late 2024, particularly in areas like NCR/MMR and CBDs.

Jefferies’ comprehensive insights indicate a cautiously optimistic outlook for the Indian real estate market, emphasizing the need for prudent strategies and regulatory compliance to sustain this growth trajectory.

VoM News Desk

VoM News is an online web portal in jammu Kashmir offers regional, National & global news.