Residential real estate sales to grow 8-10 per cent this fiscal: Study

Residential real estate developers across the top six cities in India are expected to clock 8-10 per cent sales growth this fiscal, despite interest rates and home prices rising last fiscal, riding on 4-6 per cent volume growth and 3-5 per cent increase in capital values.

Buoyant residential demand across the mid, premium and luxury segments had resulted in robust sales growth in the past two fiscals. Leverage and credit profiles of real estate developers had strengthened, too, and should sustain over the medium term. As per the latest study by CRISIL, continued strong collections and lower debt is expected to strengthen the credit profiles of developers. The study, based on 11 large and 76 small and mid-sized residential developers, hinted at this trend. These developers account for 35 per cent of the residential sales in the country.

“Healthy economic growth and offices continuing with hybrid working model are keeping demand for residential real estate steady this fiscal, especially for bigger and premium residences. This demand is expected to hold firm at 8-10 per cent despite the rise in interest rates and capital values for the aforesaid reasons. The demand momentum is expected to continue on the back of inventory being at comfortable levels of around three years of sales on average as against 4.5 plus years before the pandemic. Developers, therefore, are on a stronger footing with greater confidence on new launches getting absorbed in line with incremental demand,” remarked Aniket Dani, director, CRISIL Market Intelligence and Analytics.

As per the CRISIL study, sales by the 11 large and listed real estate developers in the sample set rose 50 per cent on-year last fiscal in value terms, while the area sold increased 20 per cent. These large developers are well poised to increase their market share to 30 per cent this fiscal from 16-17 per cent in fiscal 2020, enabled by continued strong sales and collections from their ongoing projects, easier access to bank finance and capital markets, and increasing consumer preference towards reliable and reputed brands.

According to CRISIL, the credit risk profiles of large developers have also benefited from the liquidation of inventory amid healthy sales growth in the past two fiscals. With robust collections leading to reduced debt, their leverage has improved substantially with their debt to total assets ratio expected at 20 per cent by March 2024 compared with 45 per cent at the start of the pandemic.

Meanwhile, as per CRISIL the credit metrics of small and mid-sized developers have improved, too, with debt-to-total assets ratio expected at 45-47 per cent by March 2024 as against 54 per cent before the pandemic.

According to experts from CRISIL, these players rely more on debt and may need to tie up with larger developers for new launches to benefit from the latter’s superior execution ability, strong balance sheets and reputation of quality consistent with the brand image. That said, sustenance of growth amid rising interest rates and related affordability challenges will remain key monitorables.