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 Grade 1 real estate developers to register sales growth of 15% in 2022-2023

As homebuyers remain wary of under-construction projects by Grade II developers, there has been formalisation of the sector with Grade I and strong local players gaining market share and brands winning the customer preference, ratings agency IndRa said.

Grade I real estate players are likely to register double-digit on-year sales growth of around 15 percent in 2022-2023 due to the ongoing consolidation in the realty market, rating agency India Ratings and Research said on June 29.

As home buyers remain wary of under-construction projects by Grade II developers, there has been formalisation of the sector with Grade I and strong local players gaining market share and brands winning the customer preference, it observed.

The formalisation of the sector is driving fringe players to partner with Grade I developers for project execution and sales as they command the market. The agency expects Grade I players to register double-digit sales growth of around 15% YoY in FY23, it said.

Based on Liases Foras data for 4QFY22 and the recovery witnessed in the sector, Ind-RA has maintained the sector outlook as improving for FY23 as well. The Rating Outlook remains divided as Positive for Grade I players and Negative for non-Grade I players, as bi-polarisation is expected to continue.

The Liases Foras data for FY22 for the top six cities had noted that, the overall floor space sold is likely to increase by about 12% yoy in FY23, driven by a favourable demographic composition with a higher and ever-increasing millennial population (25-44 years age group), increasing urbanisation and workforce, rising salaries, shifting work cultures, homebuyers’ preferences for bigger homes and better amenities, affordable and attractive pricing coupled with schemes and incentives.

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The recovery will likely be dominated by Grade I players, with a marginal improvement for Grade II players. With demand-side risks abating and the credit availability for the sector improving, liquidity is expected to improve further for the sector, it had said.

A stable demand, combined with prudent launches by players, had restored some supply-demand balance over FY18-FY19. However, a dwindling demand and the lockdown resulted in a rise of the unsold inventory levels to about 20 quarters at end-FY21. With the demand scenario improving, and meager launches in FY21 and 1HFY22, inventory levels have come down, and quarters to sell (QTS) was 13 quarters at end-FY22.

Ind-Ra expects the unsold inventory levels to remain stable in absolute numbers for FY23, as new launch numbers are likely to be balanced by the expected demand numbers.

Residential sales were up 46% year on year (YoY) to 276 million square feet (SF) in FY22 across the top six cities in India. Bengaluru and Pune saw the maximum increase YoY in FY22 (over 50%), due to consumer-led demand and changing ownership preferences among customers. The mid-size segment had a dominant share of sales in all micro-markets – Bengaluru (68%), Chennai (57%), Hyderabad (76%), MMR (49%), NCR (48%), and Pune (51%) in FY22.

The residential sector has shown some signs of improvement in performance as an asset class, although the majority of the demand still comes from end-users. Hyderabad remains the only market that has shown a price CAGR in a high single-digit, while the other markets have lagged behind with sub-par price CAGR (0% to 1%) over the past five years.

After witnessing a steady decline for over two years, disbursements from housing finance companies to the real estate sector witnessed a slight increase on a YoY basis in FY22. However, non-bank finance companies’ assets under management towards real estate, which had been steadily on a decline since 4QFY19, were stable over FY21-FY22, on the back of an improvement in liquidity conditions. Furthermore, banks’ exposure to the sector in FY22 remained at FY21 levels, it noted.
Moneycontrol News
first published: Jun 29, 2022 06:48 pm
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