Real Estate (Q4FY26 Results Preview): Geopolitical Headwinds Impact Sentiment

Recent launches to sales velocity saw moderation toward Q4FY26-end: Our interaction with the real estate stake holders suggests slowing sales velocity in luxury housing and elongated sales cycle for mid-premium housing. Iran war and stock market correction has impacted the wealth effect negatively and resulted in delay in deal closure. Our analysis suggests 25-30% of sales getting deferred owing to the above. Developers have held on to the prices and offered relaxed payment terms and stamp duty waivers to activate sales. NCR is worst impacted followed by luxury segment in MMR. Bengaluru impact is minimal as launches saw stable response for players like Sobha, Prestige and Godrej. We have earlier highlighted on sector growth moderation and now focus will move toward sustaining and growing presales on a FY26 base. Developers continue to launch in Q1FY27 despite headwinds with slightly lower prices and attractive payment terms as they believe that demand remains strong and price hikes may be taken at a later date. Approval scenario seems to be a mixed bag with delays persisting and overall approvals cycle seeing 15-30 days elongation.

Office leasing at multi-year highs; retail consumption sustains: The office segment closed Q4CY25 with gross leasing volumes at multi-year highs at 83.3msf (8% YoY growth), with GCC-led demand remaining the primary driver. JLL data points to vacancy tightening below 15% in Grade-A corridors in key cities, enabling rental growth of 8-10% YoY. Retail consumption remained elevated post the festive quarter, supported by strong footfall at Phoenix and other premium malls. Food & beverage and entertainment-led tenants drove incremental consumption, with mall operators reporting 12-15% YoY growth in trading density.

Geopolitical conflict and AI disruption cloud the near-term outlook; weak H1FY27 expected: Escalating geopolitical tensions and the rapid proliferation of AI-driven disruption (more so for developers with high Bengaluru concentration) have introduced a fresh layer of uncertainty across the coverage universe. The sharp correction in domestic equity markets with frontline indices declining 12-15% from their peaks has had a disproportionate impact on the luxury and mid-luxury residential segments, where a meaningful share of buyers rely on portfolio wealth and stock market gains to fund home purchases. We are observing a notable increase in sales deferrals, elongated deal closures and a cautious wait-and-watch stance among prospective buyers, as they await market recovery to part fund home purchase. On the commercial side, AI-led workforce restructuring is prompting select GCC and IT occupiers to reassess their space requirements, introducing incremental uncertainty in office pre-commitments. Against this backdrop, we expect H1FY27 to be see a marginal deceleration in sales velocity, with presales likely to moderate sharply and new launch timelines being pushed out by developers exercising caution on inventory build-up. The slowdown is expected to be more pronounced for luxury-focused and equity-market-funding-exposed presales, while affordable and mid-income segments with strong end-user demand should prove relatively resilient.

Q4FY26 earnings trend: We expect the aggregate revenue/EBITDA/PAT for the coverage universe to report YoY growth of 38.1/41.0/+6.3%. On the aggregate level, we are expecting EBITDA margin to expand by 55bps YoY.

Recommendations, upgrade GPL to buy: We have cut target price of real estate developers to factor in slowing velocity, elongation of deal closure timeline and further compression in NAV premium by 15-20% across developers. We now value the sector at NAV with zero NAV premium. With correction in stock prices, the worst seems to be priced in as current slowdown is more sentiment driven rather demand destruction. We estimate 3-6months of slowdown with new sales pickup from festive season early Q3FY27, anyways 1H is seasonally weaker. We prefer mixed use developers with high rental portfolio and stable presales. We upgrade GPL to BUY given the correction. Top picks: PEPL, Godrej Properties, Oberoi Realty and Sobha.