The Indian residential real estate sector has faced numerous challenges in recent years, from economic slowdowns exacerbated by the COVID-19 pandemic to regulatory changes and evolving consumer preferences. However, amidst these obstacles, there are indications of resilience and cautious optimism, as highlighted in a recent report by CRISIL Ratings.
According to the report, residential real estate prices in India are forecasted to experience a moderate increase of 4-6% this year. This projection is supported by various factors expected to bolster housing demand and affordability nationwide. A key driver of this anticipated growth is the rise in per capita income, which has the potential to enhance purchasing power and stimulate housing demand.
Moreover, moderating inflation and stable commodity prices are anticipated to contribute to a favorable economic environment. These factors, combined with a lower fiscal deficit and potential declines in global policy rates, could pave the way for interest rate reductions in the latter half of the financial year. Such rate cuts would not only make home loans more affordable but also enhance overall affordability, following periods of sharp increases in interest rates and property values in preceding years.
A notable trend highlighted in the CRISIL report is the expected significant market share growth for 11 listed real estate developers in India. The report predicts that their combined market share will double to 30-32% this year, compared to just 15% in the pre-pandemic fiscal year 2018-19. This growth trajectory is attributed to several factors, including the ongoing trend of premiumization in the market, improved affordability, and rising per capita income levels among Indian consumers.
Furthermore, the report underscores performance expectations for large, listed residential developers, who are projected to achieve a 10-12% growth in sales volume this year. This follows an estimated growth of 14% in the previous year, indicating sustained momentum in the market. These developers have bolstered their credit profiles through robust sales and collections over the past two years and have adopted asset-light models such as joint ventures and joint development to enhance financial resilience and market position.
In terms of supply dynamics, the report notes a notable shift towards mid-to-premium and luxury housing segments. Launches in the affordable housing segment are expected to remain subdued, with mid-to-premium and luxury segment launches accounting for 55 to 60% of total launches for the fiscal year 2023-24. This shift reflects evolving consumer preferences and developers’ increasing focus on catering to demand for higher-end housing options.
The CRISIL report paints an optimistic outlook for the residential real estate market in India, suggesting that the sector is poised for moderate price growth and sustained momentum. As the economy continues to recover from the impacts of the pandemic and regulatory reforms take effect, developers and investors are expected to capitalize on emerging opportunities and drive the next phase of growth in the sector.