by THO
Presenting a stable outlook for the residential real estate sector in financial year 2024-25, credit rating agency ICRA Limited on August 7 said that housing sales across the country’s top cities – Mumbai Metropolitan Region, National Capital Region, Bengaluru, Hyderabad, Pune, Kolkata and Chennai – are expected to witness double digit growth in 2024-2025.
According to ICRA, the area for sale is expected to increase by 12-14% annually to 785-800 million square feet in FY25 supported by strong end-user demand and healthy, albeit moderating affordability.
The average property prices are expected to rise by 5-6% during the ongoing fiscal, against 11% year-on-year in FY24, as per the agency’s estimates. “This is driven by a change in the product mix with a higher share of luxury units and pricing flexibility arising out of healthy sales and the resultant lower inventory overhang,” said Anupama Reddy, co-group head and vice president – Corporate Ratings, ICRA.
ICRA also noted that demand for real estate ownership is in play across Tier II markets, with trends similar to those seen in metro cities, particularly with regard to an inclination towards premiumisation, and that several branded developers are evaluating prospects in Tier II cities.
It also highlighted that housing sales are currently largely happening in the under-construction portfolio.
Furthermore, launches across the top seven cities are expected to rise by 12% year-on-year to 767 million square feet. This comes on the back of a decadal low inventory, comfortable years-to-sell (YTS) metric and healthy demand, the agency reasoned.
ICRA underscored that the inventory declined to 687 million square feet in June 2024 from 732 million square feet in March 2023 and the YTS remained low at 0.9 time as of June 2024, backed by healthy sales and calibrated launches. YTS is calculated as unsold inventory/sales in the last 12 months.
The replacement ratio (calculated as launches/sales in the last 12 months) is likely to sustain around 1 time for FY25, per ICRA’s study.
The agency projected that cash flow from operations is expected to improve by 9-11% during the fiscal while gross debt is anticipated to increase by 6-7% largely to fund land acquisition for new business development. The gross debt is expected to remain comfortable at 1.55 – 1.60 times in FY25.
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Meanwhile, collections are estimated to grow by 19-21% year-on-year in the fiscal year ending March 31, 2025, backed by an increase in unit sales and a hike in average selling prices, ICRA said.
Demand for rental housing to sustain
According to ICRA, demand for rental housing in FY25 is expected to continue in light of reduced inventory for ready to move-in properties, even as a sharp hike in rental yields across select pockets post the Covid-19 pandemic has presented a trigger in favour of home ownership.
“Largely the sales are happening in the under-construction portfolio, ready to move-in is relatively miniscule in the overall scheme of things when compared to what it used to be a couple of years back,” said Rajeshwar Burla, Group Head, ICRA Limited.
Elaborating on stressed real estate projects, Reddy, said that the sector has benefitted from the SWAMIH Fund formed for completion of stressed and stalled residential projects.
“There has been some movement. Overall, around 10-12% of the projects have received the final approval…the initial proposed corpus was around ₹25,000 crore for the SWAMIH Fund, of which close to ₹15,000 crore has been raised so far and this is supporting the revival of stalled projects,” Reddy said.
