Mid and affordable real estate likely to catch up with luxury segment; 10-15% booking growth expected: Kunal Tayal

Kunal Tayal, Director, BofA Securities, says in real estate, the residential sector is in its fifth year of an upcycle, and is characterized by demand exceeding supply and moderate investor participation. While luxury housing initially drove growth, a more balanced contribution from mid-segment and affordable housing is expected. Despite significant past growth, developers can anticipate 10-15% booking growth in the coming years, supported by favorable pricing trends.

Let us talk about the real estate sector because we saw a boom for the luxury apartments during Covid and the post Covid era. With price uptake still continuing, where are we in the big fat real estate cycle and how is the industry positioned at this juncture?
Kunal Tayal: The property sector or the residential sector is potentially in year five of an upcycle. One of the things that we like about the current upcycle is the fact that, as you have gone through this phase, demand has typically exceeded supply, meaning that there has not been too much of a buildup of inventory. The participation of investors in the demand has been on the lower side than typical.

Pricing has gone up, but again it has still not gone up at a pace which makes housing unaffordable and therefore, our view is that even as you have had some serious compounding happen in the last three to four years for several of the large developers, from the current basis as well, there is a potential for the companies to grow bookings at a pace of about 10% to 15% for the next few years and, of course, our view is that because pricing has been quite supportive as well, the growth rate that we can see coming out of these companies at least for the next two to three years if not all the way up to next five to seven years could be ahead of the growth in bookings that that they witness.

Since you touched upon the point of demand exceeding supply coupled with increasing prices, is this trend expected to continue and how is the premium and luxury housing versus affordable housing segment trend likely to evolve over the next decade?
Kunal Tayal: For most cases, we would assume that this is a continuation of the trend that you have seen in the last few years. Like, I said, the only delta for us is because you have had a staggering growth transpire over the last few years, it is difficult to look at a 30-35% CAGR from here and which is why we are more looking at 10% to 15%, otherwise on the ground the demand for good projects seems to be high. Of course, on any top-down matrix that you evaluate India, real estate/residential sector on, the demand should continue for the foreseeable future.

Answering your question on the luxury or the super-premium segment, this is basically what started or contributed in a big fashion to the first four or five years of the upcycle in the sector. Here on, the luxury segment continues to do well just that if we were to compare it to what has already gone by, there could be more of a balance between how luxury, the mid segment, and the affordable segments participate towards contributing to the overall growth rate of the sector. It may not be as skewed in favour of luxury like it was in the first four years.