Realty firms are on a high after last year's spending spree to buy land
Listed residential real estate companies are focusing on increasing their capital expenditure (capex) towards acquiring new land parcels. On an aggregate basis, developers utilised around 35% of their sales and pre-sales collections on land-related capex in 2024-25—the highest in recent years, showed an analysis by Nuvama Research.
A combination of favourable factors is giving realty firms the financial muscle to aggressively invest in land acquisitions, including healthy collections for most developers. Aggregate collections and operating cash flows were up 24% year-on-year each in FY25, showed Nuvama data.
Also, realtors were on a fund-raising spree during FY25, garnering over Rs22,000 crore through qualified institutional placements (QIPs) and rights issues. Plus, deleveraging efforts have made their balance sheets leaner, giving more legroom for expansions.
Investing in new land parcels is crucial for project launches, which, in turn, is required to drive growth in pre-sales or bookings.
In FY25, many realty projects faced delays in launches due to approval-related challenges, including key geographies such as the Mumbai Metropolitan Region, the National Capital Region, and Bengaluru. Central and state elections during FY25 added to approval delays.
However, latest management commentaries suggest this problem is gradually easing.
Despite RBI's rate cut, demand remains a worry
For FY26, except for DLF Ltd, key listed realty developers have guided for double-digit pre-sales growth of 18-22% and have robust launch pipelines.
The combined launch pipeline of nine listed developers under the coverage of Kotak Institutional Equities is around 140 million sq.ft., up 30% year-on-year, with a potential gross development value of ₹1.7 trillion, indicating investments in land-related capex are likely to stay elevated.
While realty companies are making all the right moves to buoy supply, concerns linger on demand moderation, which may impact absorption of new housing units and pre-sales. In the past year, the Nifty Realty index has declined by 4% versus the benchmark Nifty 50's nearly 8% rise.
The Reserve Bank of India's latest 50 basis points cut in repo rate is sentimentally positive for the real estate sector. It is expected to translate into cheaper home loan rates, boosting demand for the beleaguered affordable housing segment.
But post the covid-19 pandemic, many realty companies have increased focus on premium and luxury housing offerings where demand is relatively less sensitive to interest rates movements. So, meeting FY26 pre-sales targets on a high base and timely launches remain the key upside triggers for realty stocks.
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