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Jefferies forecasts a significant slowdown in India's property market for FY27, with sales momentum expected to decrease. This outlook follows a sharp market correction where real estate stocks have dropped roughly 20% year-to-date and nearly 40% from their 2024 peaks. This decline has pushed valuations below pre-COVID levels, creating a complex market for investors facing expected economic challenges.
Why Sales Growth is Slowing
The core reason for Jefferies' projection of 6% pre-sales growth in FY27, a significant drop from the 21% anticipated for FY26, is a combination of factors. The firm highlights delayed transactions for high-value homes, which are particularly sensitive to economic uncertainty and higher borrowing costs. For the June quarter, pricing growth is expected around 5%, with construction costs rising 2% and interest and capitalization rates increasing by 0.5 percentage points. This difficult short-term environment has led Jefferies to lower price targets for several major developers.
Developer Prospects: Strengths and Outlooks
Despite the cautious outlook, the sharp market drop may have already factored in much of the downside. Companies with strong balance sheets, healthy cash flow, and significant market share are better positioned to navigate these challenges.
Jefferies maintains a 'Buy' rating on DLF with a revised target of ₹800, confident in its steady project launches and growing lease income from its retail expansion in the NCR. Lodha (Macrotech Developers) also remains a preferred pick, with a 'Buy' rating and a price target of ₹1,215. Jefferies anticipates continued growth for Lodha, boosted by data center land sales and expansion, even as large deals in some Mumbai areas might moderate. Godrej Properties is favored for its stability, supported by a strong development pipeline and flexible product offerings, with analysts expecting significant revenue growth in the coming years that outpaces the wider market.
Prestige Estates, while facing pressure from a high previous year and potential launch delays, has seen its FY27 pre-sales estimate adjusted. Its valuation is noted to be below historical averages. Analysts generally hold a positive view, with a consensus 'Strong Buy' rating and an average 12-month price target around ₹1,900-₹1,980, suggesting considerable potential upside. Oberoi Realty, rated 'Hold' by Jefferies with a target of ₹1,680, is projected to grow from a lower base. However, estimate reductions reflect the impact of delayed high-value purchase decisions. The company's price-to-earnings (P/E) ratio is around 24-25x, with a market cap over ₹55,000 crore.
Real Estate Investment Trusts (REITs) are also part of the analysis. Mindspace Business Parks REIT and Embassy Office Parks REIT both hold 'Buy' ratings from Jefferies and are expected to offer attractive upsides. However, factors such as promoter holding levels and return on equity need careful examination for these entities.
Key Risks and Concerns for Developers and REITs
While Jefferies maintains 'Buy' ratings on key developers like DLF and Lodha, the brokerage's price target reductions signal caution. DLF's target cut to ₹800 from ₹900, and Lodha's to ₹1,215 from ₹1,475, highlight specific challenges in the premium housing segment. For Prestige Estates, despite a strong analyst consensus ('Strong Buy'), its trailing twelve-month (TTM) P/E ratio has shown significant variability, suggesting potential accounting issues or inconsistent earnings. The company also faces pressure from ongoing capital spending that strains its available cash. Oberoi Realty's 'Hold' rating suggests a more balanced view, with its price target of ₹1,680 implying limited upside, especially as delays in high-value sales are critical for its project pipeline. For REITs, while they offer income, concerns exist regarding low promoter holdings (Embassy Office Parks REIT at 7.69%) and high promoter share pledges (Brookfield India REIT at 90.0%), introducing significant governance and financial risks.
Overall Outlook: Cautious Optimism
Jefferies' forecast suggests that slower decision-making in the premium housing market, modest cost increases, and higher interest rates will impact sector momentum in FY27. Nevertheless, the brokerage's preference for developers like DLF, Lodha, and Godrej Properties, along with 'Buy' ratings on key REITs such as Mindspace Business Parks REIT and Embassy Office Parks REIT, indicates a belief in individual company strengths that can overcome broader sector challenges. Analyst consensus generally remains positive for most developers, with average price targets suggesting substantial potential upside from current levels.