Credit rating agency ICRA has revised the FY23 outlook for residential real estate to Stable from Negative, owing to multi-year high sales, which, in turn, is driven by increasing preference for homeownership, improved affordability, and all-time-low home loan interest rate, among other factors.
The sales momentum is expected to sustain, with the sales in the top seven cities expected to grow by 3 percent in FY23, on a high base of FY22. The growth in volumes in FY22 has been complemented by improvement in average realisation as a result of changing product mix and price hikes implemented, it said.
“The sharp recovery in demand in the aftermath of COVID-19 has improved pricing flexibility, particularly, in completed projects. In FY23 as well, the prices are also expected to be hiked, depending on the project-specific sales traction, to compensate for the rise in construction costs seen in recent quarters. Healthy demand prospects and pricing flexibility in completed projects can help developers to maintain profitability margins,” said Mathew Kurian, vice president, ICRA.
Additionally, even with an increase in the interest rate on home loans by 50-75 bps from current levels, the demand is expected to remain firm. New launches are expected to be ramped up significantly, supported by reduced unsold inventory levels and steady demand.
"We expect launches to be around 400 mn sqft in FY23, which is 21% higher than the estimated launches of 330 mn sqft in FY22. The larger and reputed builders with better delivery track record continue to gain market share while the weaker players are yet to fully recover," he said.
Despite the expected growth in launches, the inventory position is expected to remain comfortable in FY23, primarily on the back of steady sales. On the back of the comfortable inventory position and sales, the years to sell are expected to trend to around two years in FY23, as against 2.6 years as of the close of FY21.
However, the ability of the developers to increase prices without adversely affecting sales in the backdrop of any prolonged increase in raw material prices and the extent of new launches will be key monitorables for the industry, the rating agency said.
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