Residential real estate developers across the top six cities1 of India are expected to clock 8-10% sales growth this fiscal, despite interest rates and home prices rising last fiscal, riding on 4-6% volume growth and a 3-5% 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.

A CRISIL Ratings study of 11 large and listed2 and 76 small and mid-sized residential developers3, accounting for 35% of the residential sales in the country, indicates.

Says Aniket Dani, Director, of CRISIL Market Intelligence & Analytics, “Healthy economic growth and offices continuing with the hybrid working model is 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% despite 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+ years before the pandemic. Developers, therefore, are on a stronger footing with greater confidence on new launches getting absorbed in line with incremental demand.”

In fact, sales by the 11 large and listed real estate developers in the sample set rose ~50% on-year last fiscal in value terms, while the area sold increased ~20%. The higher realization (Rs per square feet) for these developers reflects the preference for bigger and premium homes (see chart 1 in annexure).

These large developers are well poised to increase their market share to ~30% this fiscal from 16-17% 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.

Says Pranav Shandil, Associate Director, CRISIL Ratings, “Credit risk profiles of large developers have also benefitted from 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 ratio4 expected at ~20% by March 2024 compared with ~45% at the start of the pandemic (chart 2 in annexure).”