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The Nifty Realty index has rallied about 18% over the last three months amid moderate valuations of real estate companies’ stocks, despite concerns around weakening affordability and escalating construction costs. This optimism could be due to expectations of an improving launch trajectory. July and August saw limited launches, but a spate of new residential projects would be unveiled in September. Following Oberoi Realty’s uber luxury 360 North launch in Gurugram in July, several high-profile launches are scheduled for September, said Nomura Research. These include Godrej Properties' Verano, 63A, Golf Course Extension Road in National Capital Region (NCR) with a gross development value (GDV) or revenue potential of ₹4,500 crore; Godrej’s Bandra Bay in Mumbai Metropolitan Region (MMR) with GDV of ₹6,000-7,000 crore; DLF's Aureva in NCR and Brigade Enterprises Neopolis Phase 2 in Hyderabad. The momentum seen in this quarter (Q2FY27) is likely to extend to H2FY27 in a run-up to the festive season. Premium shift Premiumization continues to dictate the launch pipeline with new offerings skewed towards the premium and luxury segment, while affordable housing remains a laggard. Care Edge Rating notes that in Q1 2022, homes priced below ₹1.5 crore accounted for 85% of new launches across the top-seven cities, but fell to 57% by Q1 of 2025 and further to 47% by Q1 of 2026. Over the same period, the share of homes priced ₹1.5–4 crore grew from a 14% share to 34% and then 44%, while homes priced above ₹4 crore rose from just 1% to 9% of new launches. Premiumization has accelerated the pace of consolidation in the sector, helping listed companies gain market share. There is a rising customer preference for home units by reputed developers having strong execution capabilities and robust cash flows. This thrust on premiumization offers some cushion in the backdrop of soaring construction costs. The West Asia war has raised steel, fuel-linked logistics, imported finishing materials and mechanical, electrical & plumbing costs. Anarock Property Consultants estimates that these expenses have added 8-10% to overall construction costs. This comes at a time when land acquisition costs have also increased. Between 2021 and 2025, the average cost (across top seven cities) to construct a standard-plus residential project (mid-to-high-tier house) increased by 34% to ₹3,604 sq ft. In the same period, average residential capital values or selling prices surged 59%, jumping to ₹9,260 per sq ft. This staggering divergence "signals an urgent affordability crisis for buyers - and a severe margin threat for developers”, Anarock said in a note on 3 September. Premium and luxury segments tend to absorb price hikes better than the affordable segment, thus aiding realizations. Although developers have taken calibrated price increases, it will be increasingly challenging to keep passing elevated costs without hurting demand prospects. Meanwhile, Nomura’s discussions with Prestige Estates Projects, Godrej and Lodha Developers did not indicate a slowdown in sustenance sales from existing inventory. Sustained traction in existing projects and timely launches are crucial to meet the 18-20% pre-sales goal of these companies in FY27. That said, a prolonged war could be a dampener for profitability. Plus, there is no clarity yet on the second-order effects of rising artificial intelligence adoption on IT hotspots of Bengaluru, Hyderabad and Pune, which can be a potential risk.
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