Housing Demand To Stay Firm In Spite Of Rising Prices, Interest Rates: Crisil

The momentum in housing demand across India's top six cities is expected to continue this fiscal and grow 5-10% despite rising property prices, interest rates and a high-base effect, CRISIL has stated.

The leverage and credit profiles of real estate developers, which had strengthened on the back of recovery in fiscal 2022, should sustain over the medium term.

CRISIL estimates housing demand rose a solid 33-38% last fiscal, surpassing pre-Covid-19 levels. But this was on a low base of fiscal 2021, when demand had fallen 20-25%.

Affordability, after improving upto 20% between fiscals 2016 and 2021, had started declining from the second half of fiscal 2022. The headwinds now are higher capital values and interest rates, reinstatement of stamp duty, and the high-base effect of fiscal 2021, CRISIL Research's proprietary index indicates.

Says Aniket Dani, Director, CRISIL Research, "We expect residential real estate prices to rise 6-10% across the top six cities this fiscal due to a steep rise in material costs and relatively favourable demand-supply dynamics, especially for established developers3. Some of them have started hiking prices by ~2% per quarter and may continue to do so over the next couple of fiscals to account for rising land prices. However, in spite of these headwinds, housing demand is likely to grow 5-10% supported by favourable demographics and urbanization."

Inventory levels in majority of the top six cities are at a comfortable 2-4 years as against 3-5.5 years before the pandemic. The correction happened because of fewer launches in the past two years owing to the pandemic, and slower sales momentum. Although new launches are expected to catch up, healthy demand will keep the inventory levels in check over the medium term. This will be largely driven by established developers, which will benefit from the sales momentum, the shift in demand to organised players, sound balance sheets, and an asset-light approach.

These realtors will continue to gain market share, cornering 24-25% of the spoils by March 2022, compared with 18% at the start of the pandemic. In fiscal 2021, their sales grew 13%, while the industry contracted 20-25%; in fiscal 2022, sales of these developers are estimated to have grown 35-40%, in line with the industry.

Says Kshitij Jain, Associate Director, CRISIL Ratings, "Established developers now have stronger balance sheets, reflected in a comfortable debt-to-total assets ratio of 25% last fiscal versus more than 40% at the start of the pandemic. They are also well-placed in terms of liquidity, having raised ~Rs 13,000 crore through both, equity and monetisation of land and commercial assets in the past two fiscals. Their improved financials will come in handy to fund growth and keep credit profiles stable."