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Housing demand momentum to continue despite rising prices and interest rates: CRISIL

CRISIL believes that strong demand, lower inventory levels and strengthened capital structures auger well for the industry. However, any aggressive debt-funded growth in the industry will have to be monitored closely over the medium term.

Representational image.

Representational image.

Housing demand momentum across India’s top six cities is expected to continue this fiscal as it grows 5-10 percent on favourable demographics and urbanisation, defying rising property prices, interest rates and a high base, an analysis by CRISIL has shown.

The leverage and credit profiles of real estate developers, which had strengthened on the back of a recovery in fiscal 2022, should sustain over the medium term. CRISIL estimates demand rose a solid 33-38 percent last fiscal, surpassing pre-virus levels. But this was on a low base of fiscal 2021, when demand had fallen 20-25 percent.

Affordability, after improving up to 20 percent between fiscals 2016 and 2021, had started declining from the second half of fiscal 2022. 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 MAHTI Index indicates.

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, it said.