Crisil- In spite rising prices and interest rates the housing demand to stay

The housing demand across India’s top six cities-Metropolitan Region (MMR), National Capital Region (NCR), Bengaluru, Pune, Kolkata and Hyderabad is expected to continue its momentum and grow 5-10 per cent this fiscal despite rising property prices, interest rates and a high-base effect, according to Crisil.

NEW DELHI: The housing demand across India’s top six cities-Metropolitan Region (MMR), National Capital Region (NCR), Bengaluru, Pune, Kolkata and Hyderabad is expected to continue its momentum and grow 5-10 per cent this fiscal despite rising property prices, interest rates and a high-base effect, according to Crisil.

The data shows that the affordability quotient, after improving up to 20 per cent between 2016 and 2021, had started falling from the second half of fiscal 2022.

The higher capital values and interest rates, reinstatement of stamp duty and the high-base effect of fiscal 2021 are the new headwinds as per reports.

Aniket Dani, director, CRISIL Research said, “We expect residential real estate prices to rise 6-10% across the top six cities this fiscal due to a steep rise in material costs and relatively favourable demand-supply dynamics, especially for established developers. Some of them have started hiking prices by ~2% per quarter and may continue to do so over the next couple of fiscals to account for rising land prices. However, in spite of these headwinds, housing demand is likely to grow 5-10% supported by favourable demographics and urbanization.”

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 took place naturally owing to less launches in the past two years due to the pandemic and slower sales drive. Although new launches are expected to catch up, healthy demand will keep the inventory levels in check over the medium term. This will be largely driven by established developers, which will benefit from the sales momentum, the shift in demand to organized players, sound balance sheets and an asset-light approach.

The big realtors will continue to gain market share, gaining over 24-25 per cent by March 2022 as compared to 18 per cent at the start of the pandemic. In fiscal 2021, their sales grew 13 per cent, while the industry contracted 20-25 per cent; in fiscal 2022, sales of these developers are estimated to have grown 35-40 per cent in line with the industry according to Crisil.

Kshitij Jain, associate director, CRISIL Ratings said, “Established developers now have stronger balance sheets, reflected in a comfortable debt-to-total assets ratio of 25% last fiscal versus more than 40% at the start of the pandemic. They are also well-placed in terms of liquidity, having raised ~Rs 13,000 crore through both, equity and monetization of land and commercial assets in the past two fiscals. Their improved financials will come in handy to fund growth and keep credit profiles stable.”

Although, small and mid-sized developers, too have good report card. Their balance sheets have improved with their debt-to-total assets ratio falling below 50 per cent in fiscal 2022 from 55-60 per cent before the pandemic. However, these players have higher dependence on debt and may need to tie up with established players for new launches to benefit from the latter’s financial flexibility and strong brand, the rating agency said.

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