Nifty Realty surged 114% in last 1 year; will the trend continue?

livemint.com:

DLF and Sobha, up 144 percent and 142 percent, respectively. Meanwhile, Macrotech Developers and Phoenix Mills also jumped 133 percent and 108 percent, respectively, in this period. On the other hand, Godrej Properties, Indiabulls Real Estate, Brigade Enterprises, Oberoi Realty and Sunteck Realty also jumped between 31 percent and 99 percent each.

The Nifty realty index has seen a surge of over 100 percent over the past year. This stellar performance can be attributed to rising real estate prices and a surge in demand. Since 2020, the Indian housing market has been experiencing a notable upswing, with housing sales doubling and supply struggling to keep pace.

Volumes in the Indian housing sector surged by approximately 25% year-on-year in 2023. This has been reflected in the balance sheets of these companies resulting in such a huge rally. This rally is expected to continue given the huge project launches in the pipeline.

With the expected rate cuts this year, home financing will be more affordable resulting in more demand in the sector which is expected to act as the tailwind. The top picks from the sector will be Macrotech, Prestige, and DLF. Over CY23, real estate prices were affordable compared to historical prices. This, combined with income growth, especially in the upper middle class and affluent class, led to a surge in demand for premium real estate.

This benefitted real estate companies that were catering to this segment of the market. The companies saw improved revenue growth, higher margins, and profitability, which translated to share price growth. Limited new supply in some markets, particularly urban areas, could also have contributed to real estate price increases.