Luxury, mid-luxury properties unaffordable: HDFC Securities

| Updated on: Jan 08, 2018

BSE Realty index underperforms Sensex by 3%

Property as an asset class has gone down in the investment pecking order, as prices remain unaffordable in the mid-luxury to luxury segments.

Analysing the 2QFY18E results over last three months, HDFC Securities said BSE Realty index has underperformed Sensex by 3 per cent.

Weak demand

“Our channel check suggests weak residential demand as investors remain on the fringes. Launches have slowed as developers are focusing on monetising inventories,” said Parikshit D Kandpal of HDFC Securities.

However, Anuj Puri, Chairman, Anarock Property Consultants, has a different take. “Affordability of housing depends on various socio-economic factors such as household income, location, prices and sizes of dwelling units,” he said.

“Moreover, even in the larger cities, developers are now working hard to bring their offerings more into the realm of affordability. Residential real estate in India is now firmly an end-user driven industry. While investors may not find it as attractive as before, the market definitely favours end-users, and we are now seeing the return of buyers who have been on the fence for a long time,” added Puri.

According to HDFC Securities, property outlook remains one of caution in the near-term. Tier-1 developers are maintaining quarterly pre-sales at pre-demonit levels through market share gains from unorganised developers. Pre-sales growth would take time to pan out.

Fall in profits

“We expect weak results across companies as cost overruns and festival discount offers will erode profitability. Revenue recognition will remain muted as pre-sales has been slowing down and inventory is piling up on under-construction projects,” said Kandpal.

He said high debt will result in larger interest expense and lower profitability of companies.

Published on October 17, 2017
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