Real Estate Q4FY26: Geopolitical Headwinds Impact Market Sentiment

The real estate sector in Q4FY26 has been significantly impacted by a combination of geopolitical tensions, stock market corrections, and the rapid rise of AI-driven disruption. These factors have introduced a layer of uncertainty, leading to a moderation in sales velocity and elongated sales cycles, particularly in the luxury and mid-premium housing segments.

Our interactions with real estate stakeholders indicate that the sales velocity in luxury housing has slowed down, and the sales cycle for mid-premium housing has become longer. The Iran war and the subsequent stock market correction have negatively impacted the wealth effect, resulting in delays in deal closures. Our analysis suggests that 25-30% of sales have been deferred due to these challenges.

Developers have responded by holding onto prices and offering relaxed payment terms and stamp duty waivers to stimulate sales. The National Capital Region (NCR) has been the most affected, followed by the luxury segment in Mumbai Metropolitan Region (MMR). In contrast, Bengaluru has seen minimal impact, with stable responses to launches from players like Sobha, Prestige, and Godrej.

Despite the headwinds, developers continue to launch projects in Q1FY27, albeit with slightly lower prices and attractive payment terms. They believe that demand remains strong and that price hikes can be implemented later. The approval scenario remains mixed, with delays persisting and the overall approvals cycle extending by 15-30 days.

The office segment, however, has performed well, with Q4CY25 closing at multi-year highs in gross leasing volumes at 83.3 million square feet (8% year-over-year growth). Demand from Gulf Cooperation Council (GCC) countries has been the primary driver. JLL data indicates that vacancy rates in Grade-A corridors in key cities have tightened to below 15%, leading to rental growth of 8-10% year-over-year. Retail consumption has also remained robust, supported by strong footfall at premium malls like Phoenix. Food and beverage and entertainment tenants have driven incremental consumption, with mall operators reporting 12-15% year-over-year growth in trading density.

However, the near-term outlook for the real estate sector is clouded by escalating geopolitical tensions and AI-driven workforce restructuring. 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 significant portion of buyers rely on portfolio wealth and stock market gains to fund home purchases. This has led to a notable increase in sales deferrals, elongated deal closures, and a cautious wait-and-watch stance among prospective buyers.

On the commercial side, AI-led workforce restructuring is prompting select GCC and IT occupiers to reassess their space requirements, adding further uncertainty to office pre-commitments. As a result, we expect H1FY27 to see a marginal deceleration in sales velocity, with presales likely to moderate sharply and new launch timelines being pushed out as developers exercise 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.

In terms of Q4FY26 earnings, we anticipate that the aggregate revenue, EBITDA, and PAT for the coverage universe will report year-over-year growth of 38.1%, 41.0%, and 6.3%, respectively. On an aggregate level, we expect EBITDA margins to expand by 55 basis points year-over-year.

Given the current market conditions, we have revised our target prices for real estate developers to account for slowing sales velocity, elongated deal closure timelines, and a further compression in Net Asset Value (NAV) premium by 15-20% across developers. We now value the sector at NAV with zero NAV premium. With the correction in stock prices, the worst seems to be priced in, as the current slowdown is more sentiment-driven rather than demand destruction. We estimate a 3-6 month slowdown, with new sales picking up from the festive season in early Q3FY27. We prefer mixed-use developers with high rental portfolios and stable presales. We have upgraded Godrej Properties (GPL) to BUY given the recent correction. Our top picks include PEPL, Godrej Properties, Oberoi Realty, and Sobha.