The real estate sector is witnessing accelerated housing demand post-covid-19. Helped by this surging demand, real estate stocks have seen many bullish calls in recent quarters with most analysts predicting that the sector has now come out of hibernation where it underperformed the market. Analysts at HDFC Securities believe there are tailwinds that are favoring a real estate revival and have led to an unprecedented pick-up in sales. HDFC Securities has upped the target prices for various real estate stocks in its coverage including DLF, Oberoi Realty, among others.

What’s changed in Real Estate?

Some of the catalysts for the real estate market in the last few years include stamp duty cuts, developer discounts, high attrition and resultant hikes, the democratization of ESOPs to cover a broader employee spectrum, achievement of accelerated unicorn status, and stock market rally. “All-time low mortgage rates and all-time high affordability have provided the supporting environment,” said HDFC Securities.

The brokerage firm added that multiple tailwinds in the market have propelled a shift towards organized players. “A large share of the buyer’s universe remains circumspect on completion of under-construction projects by tier-2 developers. This has caused a structural change with brands winning psychological mind games as well as market shares,” HDFC Securities said. Further, the deleveraging exercise undertaken by firms during the pandemic now bodes well, opening pathways for pursuing new growth opportunities through an asset-light way of joint development. 

Affordability at an all-time high

An all-time low mortgage rate and higher income for the working class has taken affordability of house ownership to an all-time high, according to HDFC Securities. “The overall trend though gives a picture of increasing affordability; viewing this in conjunction with average prices in major cities tells as that, despite flattish prices since FY14, affordability has gone up,” they added. 

Stocks to buy

DLF: Target price – Rs 486
Increase land and property price realisation by 10-15% as per HDFC Securities price prediction model for respective macro markets. The stock trades at Rs 339 per share.

Oberoi Realty: Target price – Rs 1,143
The company has been upgraded to a ‘Buy’ rating from the previous ‘Add’. Oberoi Realty has increased prices by 5-10% across projects. The stock was trading at Rs 935 per share on Wednesday.

Sobha Developers: Target price – Rs 1,000 per share
Sobha Developers saw an increase in land value and property prices by 10-15%, in line with price predictions. Shares were up on Wednesday sitting around Rs 772 apiece.

Brigade Enterprises: Target price – Rs 619 per share
The stock currently trades at Rs 500 per share. HDFC Securities has upgraded the stock from an ‘Add” rating to ‘Buy’. “Incorporated cap rate compression from 8% to 7% and increase in property prices by 10-15%,” analysts said. 

Prestige Estates: Target price – Rs 633 per share
Analysts have upgraded the stock to a ‘buy’ rating from ‘Add’ earlier. Prestige has incorporated the Mumbai projects and Commercial Assets along with 10-15% price hikes in Bengaluru in line with price predictions. Currently, the stock sits at Rs 454 apiece.

Godrej Properties: Target price – Rs 1,804 per share
The stock has been upgraded to an ‘Add’ rating from the previous ‘Reduce’ tag. The scrip trades at Rs 1,586 per share. 

Mahindra Lifespace Developers: Target – Rs 473
The company has incorporated a 10-15% increase in industrial land prices and added NAV Premium of 25% to account for the improvement in the visibility of GDV addition. Currently the scrip trades at Rs 303 per share.