Real estate developers are ramping up launches again and the focus is now on land acquisitions as large players have set ambitious sales targets for themselves starting with this year.
Between January 2022 and May 2023, there were over 100 land transactions covering an area with a development potential of 209 million square feet, according to data from JLL India. About 84 per cent of this was for residential projects with a development potential of 165 msf and sales potential of ₹1.2-lakh crore. Over a fourth of the land deals were transacted in the first five months of 2023, the data showed.
For the top six listed players in the sector, launches are expected to rise 22 per cent on year in FY24. Last fiscal year, companies such as Brigade Enterprises, Sobha Ltd, Godrej Properties and Prestige Estates launched fewer projects than they had guided for. Macrotech Developers and DLF, however, exceeded their targets.
The average growth in FY24 sales is seen at 15-20 per cent over last year with a good chunk of it being driven by new launches. “Collections and cashflows are expected to remain healthy and developers are increasing investments in business development to support future demand,” said IIFL Securities in a note on the sector. Last year, sales of the top 11 listed players rose 44 per cent on year.
Despite the high borrowing costs and the spike in residential prices, demand for homes is still continuing, though there has been a fall in recent months as affordability has become a challenge, especially at the lower end of the spectrum.
Developers are, however, betting on rates going down with the Reserve Bank of India having paused the rate hike cycle in two successive MPC meets. Commentaries from top listed real estate developers and their sales targets for the current fiscal year is a pointer to their confidence in the demand momentum sustaining.
Land acquisitions
Over half of the land deals have taken place in the Mumbai Metropolitan Region and in Delhi-NCR, JLL India said, with most of them earmarked for residential purposes.
Data sourced from company exchange filings and Nuvama Institutional Equities showed that among the top land acquirers from April 2022 onwards were Godrej Properties, Oberoi Realty, Birla Estates and Mahindra Lifespaces. Gurugram-based DLF has a substantial land bank of over 10,000 acres spread across several cities and according to the management, this will be sufficient to last it for almost a decade.
The acquisition of land by developers is a marked departure from the strategy followed in the last three years when they went in for a lot of joint developments and joint ventures. They were then pursuing an asset light model by also stepping into complete projects that were stuck due to lack of funds.
Since then, secondary sales by companies wishing to monetise their land holdings, auctions by State corporations and surplus land being freed up by respective State governments have made more real estate available for developers. This is especially the case in Maharashtra where the government is proactively freeing land that has been encroached on. Established players are taking advantage of this and adding to their land kitty for future development.
In Delhi-NCR region, most of the land acquisitions are being done in Noida and Gurugram, according to Nagaraju Routhu, CEO of Experion Developers. He said the civic authorities had tightened the terms and conditions of land auctions ensuring that only serious players with committed, firm plans were in the fray.
Launch pipeline
After launching 10 msf of projects with a revenue potential of ₹14,600 crore in FY23, DLF is now targeting 11 msf of launches in FY24 with a sales potential of ₹19,700 crore. Lodha is aiming for 10.6 msf of launches with a gross development value of close to ₹13,000 crore.
Godrej Properties is aiming to launch 19.9 msf in FY24 and has guided for a 15 per cent growth in pre-sales in terms of volumes. Bengaluru-based Sobha Ltd plans to launch 7-8 msf in FY24 and is expecting pre-sales growth of 15-20 per cent as well.
Motilal Oswal Financial Services, in a note, said the launches are driven by an improved churn rate. With inventory levels dropping to below 12 months (in terms of time to sell), companies have to ramp up launches if they have to meet their expected sales targets.
Analysts said the activity in the real estate market will be dominated by deep-pocketed, well-entrenched players as customers also prefer to buy from them as they are assured of getting their houses on time.