Housing prices may increase 6-10% this fiscal: Crisil

The prices of residential houses are expected to rise by 6-10 percent this fiscal as demand for homes remained largely unaltered with several sectors still continuing with a hybrid work model, a report published by CRISIL has revealed.

Housing prices will also increase three to five percent in the next financial year across top six cities because of a steep increase in raw material, labour and land costs, and relatively favorable demand supply dynamics, the CRISIL report added. The six cities are Mumbai Metropolitan Region, National Capital Region, Bengaluru, Pune, Hyderabad, and Kolkata.

Large listed residential realtors will clock sales growth of around 25 percent year-on-year this fiscal and 10-15 percent on that high base next fiscal, the CRISIL Ratings study of 11 large listed residential developers indicated. This will take place despite a moderation of up to 15 percent in affordability since the second half of last fiscal.

Realtors in Crisil’s sample set -- which included DLF, Godrej Properties, Mahindra Lifespace Developers, Oberoi Realty, and Prestige Estates Projects, among others -- reported sales of around Rs 31,000 crore in the first half of this fiscal, equal to their entire fiscal 2020 haul. They are expected to close this fiscal at around Rs 65,000 crore this fiscal, up a whopping 110 percent compared to the pre-pandemic level.

“Large developers generally have a good track record of timely and quality delivery, which is why they are preferred by customers. Large realtors in our sample set will likely account for 40-45 percent of new launches this fiscal versus less than 30 percent before the pandemic This will mean an increase in their market share to around 24 percent this fiscal and around 25 percent by fiscal 2024 compared with around 14 percent before the pandemic,” Gautam Shahi, Director, CRISIL Ratings, said.

Inventory levels correct

Inventory levels in the top six cities have corrected to a comfortable 2.5 years on average, as against four years before the pandemic because of fewer launches in the past two years and faster sales momentum.

Although new launches are catching up, healthy demand will keep the inventory levels in check over the next two to three years. Further, the composition of inventory has changed in the wake of the pandemic. Luxury inventory, or homes priced above Rs 1.5 crore, now comprise 40-45 percent in value versus 25-30 percent before the pandemic. The share of affordable homes, priced below Rs 40 lakh, has declined to around 10 percent from around 30 percent. This, too, has benefitted large developers, which have a smaller share of affordable homes, it said.

While launches in the affordable segment are expected to pick up, the mid-to-premium segment will dominate over the medium term.

“Our sample set has also benefited from deleveraging. Strengthening of capital structure through equity raise and monetisation of assets worth around Rs 18,000 crore over the last two fiscals have helped them sail through the pandemic. That, along with strong sales momentum, will improve their debt to total assets ratio significantly to around 23 percent by March 2023 and to around 21 percent by March 2024, from around 42 percent at the start of the pandemic,” said Kshitij Jain, Associate Director, CRISIL Ratings.