Residential real estate developers across the top six cities are expected to clock 8-10 percent sales growth this fiscal, despite interest rates and home prices rising last fiscal year, riding on 4-6 percent volume growth and a 3-5 percent increase in capital values, rating agency CRISIL said on June 21. According to the agency, buoyant residential demand across the mid, premium and luxury segments had resulted in robust sales growth in the past two fiscals. Leverage and credit profiles of real estate developers had strengthened, too, and should sustain over the medium term.
The agency also noted that sales by large listed real estate developers rose by almost 50 percent on-year last fiscal year in value terms, while the area sold increased around 20 percent. The higher realisation (Rs per square feet) for these developers reflects the preference for bigger and premium homes.
These large developers are well poised to increase their market share to around 30 percent this fiscal year from 16-17 percent in fiscal year 2020, This has been enabled by continued strong sales and collections from their ongoing projects, easier access to bank finance and capital markets, and the increasing consumer preference for reliable and reputed brands.
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“Credit risk profiles of large developers have also benefited from liquidation of inventory amid healthy sales growth in the past two fiscal years. With robust collections leading to reduced debt, their leverage has improved substantially with their debt-to-total assets ratio expected at around 20 percent by March 2024 compared with around 45 percent at the start of the pandemic,” said Pranav Shandil, Associate Director, CRISIL Ratings.
CRISIL studied 11 large and listed developers and 76 small- and mid-sized residential developers, accounting for 35 percent of residential sales in the country. The six regions/cities covered in the study are the Mumbai Metropolitan Region (MMR), National Capital Region (NCR), Bengaluru, Pune, Kolkata, and Hyderabad.
The 11 large listed players in the study are Brigade Enterprises Ltd, DLF Ltd, Godrej Properties Ltd, Kolte-Patil Developers Ltd, Macrotech Developers Ltd, Mahindra Lifespace Developers Ltd, Oberoi Realty Ltd, Prestige Estates Projects Ltd, Puravankara Ltd, Sobha Ltd, and Sunteck Realty Ltd.
Demand momentum
“Healthy economic growth and offices continuing with the hybrid working model are keeping demand for residential real estate steady this fiscal year, especially for bigger and premium residences. This demand is expected to hold firm at 8-10 percent despite the rise in interest rates and capital values for the aforesaid reasons,” said Aniket Dani, Director, CRISIL Market Intelligence & Analytics.
“The demand momentum is expected to continue on the back of inventory being at comfortable levels of around three years of sales on an average as against 4.5+ years before the pandemic. Developers, therefore, are on a stronger footing with greater confidence on new launches getting absorbed in line with incremental demand,” he added.
Also read: Mumbai’s May property registrations down 3 percent on year, 9 percent on month: Maharashtra data
Large developers are well poised to increase their market share to around 30 percent this fiscal year from 16-17 percent in fiscal year 2020, enabled by continued strong sales and collections from their ongoing projects, easier access to bank finance and capital markets, and the increasing consumer preference for reliable and reputed brands, the rating agency said.
Credit metrics
The credit metrics of small and mid-sized developers have improved, too, with their debt-to-total assets ratio expected at 45-47 percent by March 2024 as against 54 percent before the pandemic. However, these players rely more on debt and may need to tie up with larger developers for launches to benefit from the latter’s superior execution ability, strong balance sheets and reputation for quality, CRISIL said.
That said, sustenance of growth amid rising interest rates and related affordability challenges will remain key monitorables, it added.
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