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india housing sales: India Ratings expects housing sales momentum to continue, clock nine per cent growth in FY24

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India Ratings and Research has revised the outlook on the residential real estate sector to neutral from improving for 2023-24. The ratings agency expects the sales momentum to continue and housing sales to increase by 9% on-year during 2023-24, supported by steady, healthy demand.

The residential real estate market continued its upward trajectory in 2022-23 with sales growth of 15% on-year for top eight real-estate clusters despite pressure from higher input costs, increasing mortgage rates, and domestic and global recession.

Recessionary and inflationary pressures could impact near-term demand slightly; however, the agency expects the market to absorb the pressure, and believes demand would pick up eventually.

According to the ratings agency, property prices have risen by 8%-10% from a year ago in 2022-23, and might increase further by 5% in 2023-24.

Construction costs have risen 8%-10% in 2022-23, with increased input costs causing the blended costs of developers to go up by 5%-6%. However, developers might not hike prices over the next six-to-seven months so as to handle any macroeconomic concerns and might wait for the demand dynamics to play out, India Ratings said.

It expects the tier II and III cities to report significant growth with renewed government focus on developing infrastructure and improving connectivity across new cities is likely to stimulate the development of these cities.

In the tier II and III markets of Tiruchirappalli, Puducherry and Mangalore, absorption increased by over 80% between 2021-22 and first 3 quarters of 2022-23. Furthermore, absorption in the peripheral markets of Mumbai, Bengaluru and Hyderabad grew at a much higher rate of 53% compared to 16% in the main markets.Affordability had been a prime driver for housing sales in 2021-22. However, inflation compelled increase in selling prices by developers, and a series of repo rate hikes of 250 basis points since May 2022 have challenged demand dynamics in the affordable segment in 2022-23, while also causing mid and premium segment buyers to defer their purchases.

The government’s increasing developmental focus on infrastructure and budgetary aids, such as concessions in tax slabs, would, however, leave higher disposable income in the hands of prospective home buyers in the middle-class segment, driving home sales over the medium term, India Ratings added.

It expects tier I players to record a strong operating performance in 2023-24, given their increasing market share, while some tier II and marginal players would continue to struggle with poor sales, collections, and liquidity.

The ratings agency defines tier I realty developers as those that have positive brand equity, a large scale of operations, high execution capabilities, strong refinancing abilities and healthy balance sheets.

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