Residential real estate sales across key Indian property markets will see stable growth this fiscal and the next as demand steadies after three years of post-pandemic recovery with demand or volume seen rising 5-7% and average prices witnessing 4-6% appreciation, said Crisil Ratings.
With supply expected to continue exceeding demand, inventory levels are likely to inch up this and next fiscal. However, strong collections and deleveraged balance sheets of developers will keep their credit profiles healthy.
The ratings agency's analysis of 75 real estate companies, accounting for ~35% of the residential sales in the country, indicates as much.
In the three fiscals through 2025, sales clocked a compound annual growth rate (CAGR) of ~26%. Demand clocked ~14% CAGR during the same period, with the balance being contributed by the growth in realizations.
Last fiscal, according to Crisil, demand was flat because of elevated capital values and delay in launches in some cities due to state elections and changes in property registration rules. This fiscal and next, demand growth is expected to rebound driven by improving affordability on account of lower interest rates and normalization of price growth.
Demand growth will further be supported by sustained demand for premium and luxury houses and smoother launches across key micro markets, as the previous issues causing delays in launches abate.
"The premium and luxury segments in the top seven cities have witnessed a significant surge, with their share of launches increasing from 9% in calendar year 2020 to 37% in 2024. This can be attributed to rising incomes and urbanisation, which have fuelled the desire for larger, more luxurious living spaces. As the trend of premiumisation continues, the premium and luxury segments are expected to account for 38-40% of total launches in calendar years 2025 and 2026," said Gautam Shahi, Director, Crisil Ratings.
With the growth in these segments normalizing, according to him, the average price is anticipated to grow at a steady rate of 4-6% over the medium term, following the double-digit growth seen in the previous two fiscals.
In contrast, the affordable and mid-segments are likely to account for a relatively low share of launches — 10-12% and 19-20%, respectively — in calendar years 2025 and 2026. This represents a significant decline from their respective shares of 30% and 40% in calendar year 2020, as rising land and raw material costs has rendered these segments less viable for developers.
In anticipation of robust demand growth, developers ramped up launches over the past three fiscals, resulting in overall supply outpacing demand during the period. As supply is likely to continue outpacing demand this fiscal and the next, the inventory is likely to inch up to 2.9-3.1 years from 2.7-2.9 years in the previous two fiscals, the ratings agency said.
However, robust collections, driven by strong sales and timely project execution, as well as the increasing adoption of asset-light models such as joint ventures and joint development of projects, have helped developers significantly deleverage their balance sheets.
This trend has been further bolstered by substantial equity inflows, as reflected in the notable increase in qualified institutional placement (QIP) volume for our sample set of developers, wherein the QIP proceeds as a percentage of outstanding debt jumped to 24% last fiscal, up from 13-16% in the preceding three fiscals.
“The significant increase in QIP proceeds and the continuing improvement in cash flow from operations (CFO), which is the operating surplus generated from collections after accounting for construction, operating and committed land costs, has contributed to strong credit metrics for the developers. That, along with deleveraged balance sheets, will improve their debt-to-CFO ratio slightly to 1.1-1.3 times in this fiscal and the next, from 1.2-1.5 times over the past two fiscals. To put in perspective, the ratio was as high as ~5.6 times in fiscal 2020," said Pranav Shandil, Associate Director, Crisil Ratings.
That said, the ability of developers to maintain low to moderate leverage and prudence in controlling inventory at reasonable levels will remain monitorable, the ratings agency added.
With supply expected to continue exceeding demand, inventory levels are likely to inch up this and next fiscal. However, strong collections and deleveraged balance sheets of developers will keep their credit profiles healthy.
The ratings agency's analysis of 75 real estate companies, accounting for ~35% of the residential sales in the country, indicates as much.
In the three fiscals through 2025, sales clocked a compound annual growth rate (CAGR) of ~26%. Demand clocked ~14% CAGR during the same period, with the balance being contributed by the growth in realizations.
Last fiscal, according to Crisil, demand was flat because of elevated capital values and delay in launches in some cities due to state elections and changes in property registration rules. This fiscal and next, demand growth is expected to rebound driven by improving affordability on account of lower interest rates and normalization of price growth.
Demand growth will further be supported by sustained demand for premium and luxury houses and smoother launches across key micro markets, as the previous issues causing delays in launches abate.
"The premium and luxury segments in the top seven cities have witnessed a significant surge, with their share of launches increasing from 9% in calendar year 2020 to 37% in 2024. This can be attributed to rising incomes and urbanisation, which have fuelled the desire for larger, more luxurious living spaces. As the trend of premiumisation continues, the premium and luxury segments are expected to account for 38-40% of total launches in calendar years 2025 and 2026," said Gautam Shahi, Director, Crisil Ratings.
With the growth in these segments normalizing, according to him, the average price is anticipated to grow at a steady rate of 4-6% over the medium term, following the double-digit growth seen in the previous two fiscals.
In contrast, the affordable and mid-segments are likely to account for a relatively low share of launches — 10-12% and 19-20%, respectively — in calendar years 2025 and 2026. This represents a significant decline from their respective shares of 30% and 40% in calendar year 2020, as rising land and raw material costs has rendered these segments less viable for developers.
In anticipation of robust demand growth, developers ramped up launches over the past three fiscals, resulting in overall supply outpacing demand during the period. As supply is likely to continue outpacing demand this fiscal and the next, the inventory is likely to inch up to 2.9-3.1 years from 2.7-2.9 years in the previous two fiscals, the ratings agency said.
However, robust collections, driven by strong sales and timely project execution, as well as the increasing adoption of asset-light models such as joint ventures and joint development of projects, have helped developers significantly deleverage their balance sheets.
This trend has been further bolstered by substantial equity inflows, as reflected in the notable increase in qualified institutional placement (QIP) volume for our sample set of developers, wherein the QIP proceeds as a percentage of outstanding debt jumped to 24% last fiscal, up from 13-16% in the preceding three fiscals.
“The significant increase in QIP proceeds and the continuing improvement in cash flow from operations (CFO), which is the operating surplus generated from collections after accounting for construction, operating and committed land costs, has contributed to strong credit metrics for the developers. That, along with deleveraged balance sheets, will improve their debt-to-CFO ratio slightly to 1.1-1.3 times in this fiscal and the next, from 1.2-1.5 times over the past two fiscals. To put in perspective, the ratio was as high as ~5.6 times in fiscal 2020," said Pranav Shandil, Associate Director, Crisil Ratings.
That said, the ability of developers to maintain low to moderate leverage and prudence in controlling inventory at reasonable levels will remain monitorable, the ratings agency added.
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