Realty Check: Is the Rally Built to Last?

The real estate sector is finally back in the spotlight and for a good reason! With the RBI pressing ahead with another repo rate cut, interest-sensitive sectors are drawing renewed attention, and realty is leading the charge. After a muted 2010-2022 period, real estate is showing signs of life. In this story, Mandar Wagh takes you through the sector’s long quiet phase, the spark behind its renewed momentum, and what the numbers reveal about its staying power. Is this rally the real deal or just a short-term bounce? Let’s find out! 

Investor mood has turned upbeat recently, thanks to improving macroeconomic conditions and a gradual easing of past pressures, be it India-Pakistan geopolitical tensions, persistent FII sell-offs, or underwhelming earnings. Riding this wave, the real estate sector has made a bold comeback. The BSE Realty index has soared 25 per cent in just two months, turning heads on Dalal Street. But here’s the twist—despite this sharp recovery, the index still trades about 15 per cent below its 52-week high. 

For sharp-eyed investors, this gap could spell opportunity, especially in a rate-friendly environment, with the Reserve Bank of India (RBI) recently trimming the repo rate to 5.50 per cent. So, is this the right time to bet on realty? Or is the rally running ahead of fundamentals, especially when property sales in metro cities are showing signs of cooling off? In this story, we decode the financial pulse of the sector, uncover the growth catalysts, assess the challenges, and map out what lies ahead for real estate investors. 

About the Sector
The Indian real estate sector is not just one of the largest contributors to the country’s GDP—it’s also a major employment generator and a key driver of infrastructure growth. The real estate sector in India is expected to reach a market size of USD 1 trillion by 2030, up from USD 200 billion in 2021, riding a CAGR of around 16-18 per cent. It is projected to experience substantial growth, potentially reaching a value of USD 5-7 trillion by the year 2047. 

The sector is broadly categorised into four major segments— residential, commercial, retail, and industrial/warehousing, each contributing uniquely to the sector’s growth story. The residential segment remains the cornerstone of the sector, driven by rising disposable incomes, favourable demographics, urbanisation, and increasing nuclear families. Demand is especially strong in tier-1 and tier-2 cities, with affordable and mid-income housing leading the charge. Leading players in this segment include Godrej Properties, DLF, Macrotech Developers (Lodha), Prestige Estates and Sobha, all of whom have a strong residential pipeline across major urban centres. The commercial real estate segment, especially Grade A office spaces, has witnessed robust demand, supported by the expansion of IT/ITeS, BFSI, startups, and global capability centres. The work-from-office trend’s resurgence, coupled with growing interest in flexible and co-working spaces, has further boosted absorption levels. Major developers in this space include Brookfield India REIT, Mindspace Business Parks REIT, Embassy Group and DLF Cyber City Developers. The retail real estate segment, which faced a temporary setback during the pandemic, is now on a recovery path, thanks to rising consumption, organised retail expansion, and increasing mall footfalls. 

Developers just like Phoenix Mills, Prestige Group and Nexus Select Trust have been instrumental in shaping premium retail destinations across India. The industrial and warehousing segment is witnessing a surge, fuelled by the e-commerce boom, manufacturing push under 'Make in India', and improved supply chain dynamics. Grade A warehouses near consumption hubs are in high demand. Together, these segments form the foundation of India’s real estate ecosystem, offering a diverse set of opportunities for investors and developers alike. 

A Decade of Stagnation
Despite its significant role in the Indian economy, the real estate sector remained lacklustre for much of the decade between 2010 and 2020. Several interlinked challenges—ranging from regulatory ambiguity to financial distress—stifled growth and investor sentiment. One of the most pressing issues was the lack of transparency and regulatory oversight. Prior to the implementation of the Real Estate (Regulation and Development) Act (RERA), the sector operated in a largely unregulated environment. 

Homebuyers had little protection, and delays, cost overruns, and quality concerns were widespread. This eroded buyer confidence and led to sluggish sales across key markets. Another major concern was the large number of stalled and delayed projects, especially in regions like the Delhi-NCR. Many developers over-leveraged themselves during the boom years, acquiring expensive land banks without having sufficient working capital. As sales slowed and funding dried up, numerous projects were left incomplete, locking in consumer funds and damaging brand trust. 

The liquidity crisis worsened after the collapse of major non-banking financial companies (NBFCs) in 2018, as these institutions had been primary financiers for real estate development. Events such as demonetisation in 2016 delivered another blow, particularly to the secondary and luxury housing markets, where cash transactions were prevalent. This sudden clampdown led to a dip in property transactions and further slowed market momentum. Meanwhile, while RERA and the Goods and Services Tax (GST) were introduced as gamechanging reforms, their initial implementation created short-term disruptions, as developers adjusted to the new compliance norms. 

Adding to the woes was weak end-user demand due to persistently high property prices, especially in urban centres. Despite excess supply, homes remained unaffordable for a large segment of the population, resulting in high unsold inventory levels and poor project absorption. These cumulative challenges led to a prolonged period of stagnation in the real estate sector—one that only began to reverse as reforms settled in, balance sheets improved, and demand gradually recovered post-2022. 

Reforms, Resilience, and a Revival Story
After a prolonged period of stagnation, India’s real estate sector has witnessed a strong resurgence over the past 3-4 years. It has recorded unprecedented presales and a sharp rise in new project launches, underscoring strong end-user confidence. Strengthened balance sheets and healthier cash flows have empowered developers to pursue expansion with greater financial prudence. This renewed momentum is not only driven by improving economic fundamentals but also by a wave of proactive government reforms and long-term structural growth drivers. These efforts have enhanced transparency, boosted investor confidence, and laid the foundation for long-term growth. 

One of the most transformative reforms has been the implementation of the RERA, which brought much-needed accountability and transparency to the sector. RERA has empowered homebuyers and increased discipline among developers, fostering trust in the residential segment. The Pradhan Mantri Awas Yojana (PMAY) under the ‘Housing for All’ mission aims to build millions of affordable homes, especially for urban poor and economically weaker sections. The availability of credit-linked subsidies under PMAY has significantly driven demand in the affordable housing segment. 

Infrastructure-focused initiatives such as the Smart Cities Mission, Atal Mission for Rejuvenation and Urban Transformation (AMRUT), and the National Infrastructure Pipeline (NIP) have improved urban liveability, indirectly boosting real estate values. On the growth side, rapid urbanisation, a young workforce, rising middle-class income, and increased foreign direct investment (FDI) have amplified housing and commercial demand. The government has also relaxed FDI norms in construction and development, attracting global investors to Indian real estate. 

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The introduction of Real Estate Investment Trusts (REITs) has opened up new avenues for investors, especially in commercial real estate. REITs allow retail and institutional investors to invest in income-generating properties, promoting greater liquidity and formalisation. The Union Budget 2025-26 offers a boost to homeowners by allowing nil tax on two self-occupied properties, up from the previous limit of one. Additionally, the increase in the TDS threshold on rental income from ₹2.4 lakh to ₹6 lakh is expected to further incentivise property ownership and drive housing demand. In a decisive move to bolster economic growth amid easing inflation, the RBI implemented two consecutive repo rate cuts in early 2025. 

The latest reduction of 50 basis points in June brought the benchmark rate down to 5.50 per cent. A rate cut will reduce borrowing costs, making home loans and real estate financing more affordable. This move is expected to benefit both homebuyers—by lowering EMIs—and developers, through improved access to cheaper capital for new and ongoing projects. Together, these policy efforts and growth drivers are positioning India’s real estate sector as a compelling long-term investment opportunity. 

Financial Realty
To present a holistic view of the real estate sector’s performance, we analysed all constituents of the BSE Realty Index, encompassing key players across residential, commercial, and retail segments. The data reveals a contrast between subdued year-on-year growth and a strong quarter-on-quarter rebound. In Q4FY25, aggregate revenue grew by a modest 6 per cent compared to the same quarter last year, while net profit saw a marginal rise of 2 per cent. However, sequentially, the sector demonstrated renewed momentum, with revenue surging over 15 per cent and net profit recording a solid 19 per cent growth. 

In Q4FY25, real estate companies reported stronger quarteron-quarter growth performance compared to year-on-year growth numbers, driven by seasonal tailwinds and strategic timing of launches. The January-March quarter typically marks the peak season for real estate transactions in India, as it benefits from stable weather conditions, financial year-end incentives, and improved consumer sentiment post the festive period. During Q3FY25, the sector faced disruptions due to the festive season lull, monsoon-linked construction slowdowns, and high base effects. While festive months generate strong enquiries, actual bookings and registrations tend to peak in the final quarter of the financial year. 

This seasonal pattern played out again in FY25, with many developers pushing inventory and closing deals in Q4. Additionally, developers benefited from improved realisation per unit and efficient cost management in Q4FY25, supporting margin expansion even amid volume pressure. The quarter also saw better collection efficiency and project execution pace, contributing to improved operating metrics. On the other hand, year-on-year performance appeared relatively moderate as Q4FY24 had seen robust sales momentum, driven by pent-up demand and more favourable affordability levels. In contrast, Q4FY25 faced headwinds from rising property prices, tightening affordability for mid-income buyers, and initial signs of demand saturation in some metro markets. 

Godrej Properties Ltd emerged as a standout performer, recording triple-digit growth in both revenue and net profit on a sequential basis, reflecting strong execution and sustained demand. DLF Ltd also delivered a robust performance, reporting healthy double-digit growth in both topline and bottom-line, year-on-year as well as quarter-on-quarter, supported by its premium residential portfolio and steady leasing income. In contrast, Signatureglobal (India) Ltd witnessed a notable decline in revenue, as its focus on affordable and mid-income housing in the National Capital Region (Delhi-NCR) was impacted by weakening demand. 

The sharp rise in property prices in NCR has weighed on buyer sentiment in the price-sensitive segment, leading to a slowdown in sales volumes for the company. Despite varied performances, a majority of the companies managed to post positive 

sequential growth in both revenue and profit. In essence, the quarter-on-quarter improvement highlights the sector’s seasonality and resilience, even as year-on-year growth reflects a maturing cycle post-pandemic boom. 

A Rally with Room to Run
Our analysis of the BSE Realty Index constituents over various timeframes revealed a striking trend: most stocks that had been delivering negative returns year-to-date staged a sharp comeback, delivering strong double-digit gains—some as high as 40 per cent—during the recent two-month rally. This rebound was fuelled by renewed investor optimism, driven by interest rate cuts and an overall improvement in the financial performance of real estate companies. Despite the recent rally, the index trades 15 per cent below its 52-week high, suggesting there may be more headroom for growth—if favourable macroeconomic conditions and sector fundamentals remain intact. 

Manageable Clouds
India's real estate sector, after a period of robust growth, is currently grappling with several challenges that have led to a noticeable slowdown, particularly in metropolitan areas. While the luxury housing segment continues to see demand from high-net-worth individuals, the affordable and mid-income segments are under pressure. In the first quarter of calendar year 2025, residential sales across India’s top seven cities fell by 28 per cent year-on-year, marking a sharp shift from the sustained growth seen in recent years. Key markets such as Hyderabad, Pune, and Bengaluru bore the brunt of this slowdown, with sales plunging by 49 per cent, 30 per cent, and 16 per cent, respectively. 

The decline is largely driven by a steep rise in property prices, which has significantly impacted affordability, particularly for middle-income homebuyers. During the quarter, average residential prices in these major cities rose between 10 per cent and 34 per cent over the previous year, with Delhi-NCR and Bengaluru witnessing the steepest annual spikes—over 34 per cent and 20 per cent, respectively. As of June 2025, according to data from the Karnataka Real Estate Regulatory Authority (K-RERA), over 2,600 projects have lapsed due to missed construction deadlines and non-compliance with mandatory progress updates. 

Bengaluru is the most affected, accounting for more than 1,300 of these stalled developments. These delays stem from multiple factors, including regulatory hurdles, financial constraints, and inadequate project planning. Despite regulatory reforms, government support, and improved access to financing, challenges persist in the real estate sector—often stemming from individual developers’ inefficiencies rather than systemic flaws. The ability to adapt to changing market dynamics, ensure disciplined fund utilisation, maintain timely project execution, and comply with regulatory norms remains critical to sustainable performance. 

While the ongoing slowdown in residential sales—largely due to rising property prices—has raised concerns, it is unlikely to derail the sector’s long-term trajectory. Given the robust underlying demand, especially in urban centres, property values are expected to continue appreciating, and market momentum is likely to return in due course. Seasonal factors like the monsoon traditionally lead to a slowdown in India’s real estate sector. The July-September quarter often witnesses muted activity as construction work slows due to heavy rains, logistical challenges, and safety concerns on project sites. 

Additionally, homebuyers tend to postpone purchase decisions during this period, waiting for festive seasons like Navratri and Diwali that are considered more auspicious for big-ticket investments. However, the sector typically regains momentum as seasonal challenges subside and the festive season begins, bringing renewed buyer interest and a surge in demand driven by sentiment and promotional offers. Therefore, investors with a long-term outlook should look beyond short-term volatility and focus on the sector’s strong structural growth drivers. 

Clear Skies Ahead?
In conclusion, the long-term outlook for the real estate sector remains optimistic. A review of its financial performance reveals that many of the challenges that held back growth in the previous decade have significantly diminished. With continued policy support, proactive government initiatives, and strong structural growth drivers, the sector is well-positioned to scale new highs in the years ahead. Investors looking to enter the real estate space through listed stocks must take a fundamental approach before committing capital. 

Key factors to evaluate include the company's financial health—such as revenue growth, profitability, debt levels, and cash flow generation. It's also important to assess the developer’s execution track record, project pipeline, and geographical presence. Strong corporate governance, regulatory compliance, and timely project delivery are essential indicators of long-term sustainability. Investors should also consider broader macro trends like interest rate movements, housing demand across regions, and sectoral policies that may influence future earnings. 

Valuation metrics such as price-to-book ratio, return on equity, and enterprise value to EBITDA can offer insights into whether a stock is fairly priced relative to its peers. Ultimately, a balanced combination of strong fundamentals, clear visibility on future growth, and prudent capital management can help investors identify quality opportunities in this evolving sector. Apart from stocks, investors can also consider Real Estate Investment Trusts (REITs) as a compelling alternative. REITs are listed entities that own, manage, and lease income-generating real estate assets such as office parks, malls, and warehouses. 

They offer investors regular dividend income, portfolio diversification, and access to high-value commercial properties with relatively low capital outlay. As they are traded on stock exchanges, REITs provide greater liquidity compared to direct property investments, along with professional asset management. With India's growing commercial real estate market and rising institutional interest, REITs have emerged as an efficient and tax-efficient investment vehicle for retail investors seeking long-term exposure to the real estate sector. Keep reading Dalal Street Investment Journal for in-depth sectoral insights and well-researched analysis that can help you uncover potential investment opportunities across a wide range of sectors.