Jefferies Expects Housing Upcycle To Last 5-7 Years; Lists Top 7 Stock Picks

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Indian housing sector is emerging from an eight-year downturn and 2020 was the bottom, according to Jefferies. The upcycle, it said, is now expected to go on for the next five to seven years.

“Housing affordability is at the best in the last 20 years and huge pent-up demand exists. The missing link was buyer sentiment which has now turned. Unsold inventory is already trending down and should drive a positive price impact, required for sustained positive sentiments,” a team of analysts led by Mahesh Nandurkar said in a note.

Buying homes, according to joint survey by the Confederation of Indian Industry and property consultants Anarock, has gained precedence over renting and bigger-sized houses are seeing increased demand. With deals and discounts being offered by developers and lower home rates, 62% out of the 39,000 survey respondents intended to buy homes immediately. Stamp duty cuts in Maharashtra and reduced circle rates across categories in Delhi, too, aided the sector, prompting real estate stocks to outperform the benchmark indices over the last six months.

“Primary property sales have grown only at about 2% CAGR since 2008 and as such, we see significant pent-up demand which can drive the cycle higher for multiple years,” Jefferies said.

The firm expects unsold inventory to correct by another 8% by December 2021, bringing in a healthy price momentum.

Besides, the research firm expects housing revival to drive India’s GDP growth higher by about 1 percentage point and create an additional 2.5 million jobs per annum incrementally over the next five years. “Housing as a percentage of GDP is estimated at 5% currently and should hit 9-10% at the peak. The sector is labour intensive with 25-30 million labour employed and has deep connections with building materials, home improvement and several other industries,” the note said. “A housing cycle turnaround could thus kickstart India’s long stagnant capex cycle as several industries co-invest around the theme and real estate development dovetails into many infrastructure projects.”

That prompted the research firm to list its top picks in the sector. Godrej Properties Ltd., Sobha Ltd., HDFC Ltd., Kajaria Ceramics Ltd., ACC Ltd., Larsen & Toubro Ltd., and Supreme Industries Ltd., it said, are expected to deliver 50-80% returns over the next three years.