Although a likely global recession and ongoing inflation may slightly dampen the demand in the near term, the market should absorb any pressure, supported by a supply consolidation and a relative improvement in affordability compared to the historical standards, the ratings agency said.
The demand growth would be lopsided as grade I players would likely register sales growth of about 15%-18% on-year in 2023-24 and are likely to experience more favourable liquidity than that of lower tiers.
India Ratings is of the view that as home buyers are cautious of under-construction projects, the sector has formalised, with grade I and strong local players gaining the market share and brands winning customer preference.
Based on Liases Foras data as of March 2023, residential sales were up 18% on-year to 392 million sq ft in 2022-23 across the top eight cities in India including Mumbai Metropolitan Region (MMR), Bengaluru, Chennai, Hyderabad, National Capital Region (NCR), Pune, Ahmedabad, and Kolkata — supported by steady and healthy demand.
Following the pandemic, the housing market saw a significant increase in demand, with rekindled interest and improved perceptions from homebuyers. However, India Ratings has revised the Outlook on the residential real estate sector to neutral from improving for 2023-24.Supply consolidation continued wherein the formalisation of the sector has been driving non-grade I players to partner with grade I developers in project execution and sales as the latter has command of the market.The ratings agency expects the grade I players to achieve robust operational performance in the ongoing financial year, owing market share gains and entry into new markets.
Based on Liases Foras data for 2022-23, unsold inventory levels increased to 1,289 million sq ft, owing to new launches, and the overall quarters to sell (QTS) remained stable at about 13 quarters, on the back of an 18% on-year increase in the sales and 20% rise in inventory.
The sector saw new and enhanced product launches in response to market demand, resulting in a reasonable demand-price balance. Overall, new launches were up 60% from a year ago to 551 million sq ft in 2022-23.
Of the eight cities, Bengaluru had the lowest QTS inventory at about eight quarters, followed by 9 quarters in Pune, while MMR has the highest QTS inventory at around 19 quarters. The new-launch-to-sales ratio for the top eight cities combined increased to 1.41x in 2022-23, as developers launched more projects, India Ratings said.
The K-shaped demand continued wherein the affordable segment, valued up to Rs 50 lakh witnessed a decline in sales of about 8% in 2022-23, basis the aggregate sales across the top eight cities. The affordable housing segment’s share decreased further to 24% in 2022-23, indicating a continued decline in the segment.
Price increases are likely to moderate in the current financial year, with the prices already having increased by 10%-13% in 2022-23. The NCR market witnessed the highest surge in prices, which had experienced a constant correction and a stagnation in prices due to low demand for a long period. The markets such as Hyderabad, Mumbai, Kolkata, and Bengaluru followed suit, showing an incremental trend in the housing prices
The unsold inventory levels are likely to inch up in absolute number for 2023-24, as the number of new launches is likely to be higher than the demand.
Disbursements from housing finance companies to the real estate sector increased 23% year-on-year in 2022-23 (based on the top eight listed housing finance companies).
The share of wholesale non-banking finance companies towards the sector remained stable at the end of 2022-23, on the back of an improvement in the liquidity conditions of non-banking finance companies, while banks’ exposure to the real estate sector also remained at the 2021-22 levels.
