Real estate stocks fall after Morgan Stanley notes slower pre-sales

On August 27, real estate stocks fell as Morgan Stanley highlighted a decline in investor interest in the sector compared to six months ago. The note pointed out that developers are becoming increasingly reliant on new launches, and current valuations are high. Despite these challenges, the brokerage remains optimistic, noting that the sector is still in an up-cycle.

Morgan Stanley’s analysts expect a slowdown in pre-sales for major developers like DLF, Oberoi, and Prestige. This has led investors to show more interest in smaller developers. Among these, Godrej is noted as a preferred choice, though concerns about its lower margins and cash flow persist. On an EV/EBITDA basis, Prestige and Godrej, rated as “Overweight,” appear relatively cheaper, potentially offering attractive investment opportunities despite ongoing uncertainties.

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DLF Share Price as of 9:35 am- ₹846.05

Oberoi Share Price as of 9:35 am – ₹1,721.55

Prestige Share Price as of 9:35 am – ₹1,752.15
International brokerage Citi has recently increased target prices for several real estate stocks. Despite expressing confidence in sustained demand over the next few years and emphasizing timely launches due to low inventory, Citi cautioned about expensive valuations.
The Nifty Realty index has surged 93% over the past year, compared to a 27% rise in the Nifty index, raising concerns about overvaluation despite positive earnings growth potential.

JM Financial’s latest report indicates that with historically low inventory, rising disposable income, and limited supply expansion, the residential real estate sector is poised for continued growth.

For FY25, JM Financial expects an 18% market growth, including a 12% increase in volume and a 6% rise in prices. The brokerage advises focusing on developers known for timely launches and strategic business development, initiating coverage with ‘buy’ ratings for DLF, Keystone, Macrotech, and Sobha, and a ‘hold’ rating for Oberoi Realty.