HSBC: Real Estate Demand Strong, But Stocks Lag Despite Big Firms Driving Growth

The report highlighted that large real estate companies are driving sector performance, while stocks across companies continue to underperform amid investor concerns over demand sustainability, cash flows, and margins.

It stated, "Large real estate companies driving up sector performance, but all stocks similarly under-performing"

The report mentioned that residential pre-sales have remained steady, with booking value for a cohort of 17 developers growing 15 per cent for 9MFY26. This follows a strong growth of about 24 per cent year-on-year in FY25, indicating sustained demand momentum.

The report noted that booking performance remains broadly in line with annual targets. Bookings during 9MFY26 accounted for around 70 per cent of full-year guidance for major listed developers, with large real estate developers performing better compared to mid-sized and smaller companies.

Project launches also improved during the period but remained lower relative to targets, reaching around 63 per cent of full-year guidance. Cash collections, which have been a key concern for investors, showed improvement, growing 14-15 per cent year-on-year for both 9MFY26 and 3QFY26.

Despite steady operational performance, stock market performance of real estate companies has remained weak.

As per the data, the BSE Realty Index has declined 8 per cent year-to-date, compared to a 2.2 per cent decline in the NIFTY 50. Since the end of December 2024, the BSE Realty Index has fallen about 23 per cent, while the NIFTY 50 has gained approximately 8.1 per cent during the same period.

The report said investors remain cautious due to concerns that the residential demand cycle may be slowing, cash flows could weaken, and margins from new projects may be lower. Declining volumes, despite rising booking values, have also added to investor concerns.

However, HSBC noted that the overall health of the real estate industry remains strong, with listed companies maintaining comfortable balance sheets and low leverage levels. This allows developers to reduce borrowing costs and support margin expansion by improving project returns.

Unsold inventory levels remain largely between one to two years, indicating stable demand conditions but also highlighting dependence on new launches to drive future growth.

The report added that the fourth quarter will be crucial for the sector, as it is traditionally a strong period for deliveries, sales, and collections. HSBC expects the performance in Q4 to set the tone for the sector, with growth likely to remain strong.

- ANI