India’s residential real estate market is likely to maintain a steady growth trajectory over the current and next fiscal years, with sales volume expected to rise by 5-7 per cent and average prices appreciating by 4-6 per cent, Crisil Ratings said in its latest sectoral outlook. As per ET, the projection follows a robust three-year post-pandemic recovery period where residential sales clocked a compound annual growth rate (CAGR) of around 26 per cent, driven both by higher demand and better realisations.Crisil’s analysis, based on a sample of 75 developers representing nearly 35 per cent of national residential sales, indicates that although supply has outpaced demand in recent years and is expected to continue doing so, the overall credit profile of real estate firms remains strong. This is largely due to solid cash collections and significantly deleveraged balance sheets.According to Crisil, demand remained flat in FY24 owing to high property prices and delayed launches in cities impacted by state elections and regulatory changes. However, this is expected to recover in FY25 and FY26 as affordability improves with easing interest rates and a more stable pricing environment.“The premium and luxury segments in the top seven cities have witnessed a significant surge, with their share of launches increasing from 9 per cent in 2020 to 37 per cent in 2024,” said Gautam Shahi, director at Crisil Ratings, adding that these categories could constitute as much as 40 per cent of total launches by 2026, according to ET.The trend, he said, is being fuelled by rising incomes and urbanisation, as buyers increasingly seek larger and more upscale homes.Meanwhile, launches in the affordable and mid-income segments are expected to decline sharply, accounting for just 10-12 per cent and 19-20 per cent of launches respectively in calendar years 2025 and 2026, a fall from their 30 per cent and 40 per cent shares in 2020. “Rising land and input costs have made these categories less financially viable for developers,” Shahi explained.Inventory levels, which stood at 2.7-2.9 years over the past two fiscals, may edge up to 2.9-3.1 years due to continued oversupply. Yet, Crisil noted that developers have managed to deleverage significantly by adopting asset-light models such as joint ventures and by raising equity through qualified institutional placements (QIPs). QIP proceeds as a share of total debt rose to 24 per cent in FY24, up from 13-16 per cent in the three preceding fiscals.“The significant increase in QIP proceeds and the continuing improvement in cash flow from operations (CFO) has contributed to strong credit metrics,” said Pranav Shandil, associate director at Crisil Ratings. “As a result, the debt-to-CFO ratio is expected to improve to 1.1-1.3 times over this fiscal and the next, compared to 1.2-1.5 times in the past two years. For context, this ratio was as high as 5.6 times in FY20.”However, Crisil warned that developers’ ability to keep leverage low and manage inventory prudently will remain critical in sustaining this financial stability.
