The housing demand in the top eight cities is set to rise by 6-9% over the next two financial years despite economic challenges. Positive consumer sentiment, stable interest rates, and timely project completions by well-known developers are fueling confidence in the residential real estate sector. Most housing indicators point to the continuation of strong demand, a standout feature of this fiscal year.
The industry consolidation sees a handful of leading developers undertaking residential projects, effectively navigating economic hurdles stemming from the pandemic. Crisil forecasts a robust 11-13% year-on-year growth in primary residential sales this fiscal year, driven by sustained interest in homeownership across these cities.
Specifically, the Mumbai Metropolitan Region (MMR) observed a notable 10% increase in registrations in the trailing 12 months until November 2023. Pune also saw a significant uptick with a 9% rise in registrations compared to the previous year. The demand in these cities is anticipated to grow annually by 6-9% in the next two financial years. However, MMR and NCR are expected to contribute minimally to this growth.
MMR’s growth is likely to be limited primarily to the luxury segment, with minimal growth expected in the mid and affordable-housing segments. Similarly, the National Capital Region (NCR) might see a 2-4% demand growth in fiscal year 2025, driven by modest demand for luxury housing and subdued demand for affordable and mid-segment housing.
Bengaluru and Hyderabad have demonstrated robust demand growth this fiscal year due to a return of employees to offices and an increasing need for spacious homes, resulting in healthy sales across residential and commercial spaces. Additionally, new launch prices are expected to rise due to increasing land values and heightened demand. Reputable developers are witnessing a surge in new project launches, signaling buyer preference for established names.
Regarding leverage and credit profiles, real estate developers have strengthened over the past few years due to robust demand and reduced debt. This trend is expected to continue, with a decline in gross debt and an improvement in debt-to-total assets ratio for large listed real estate developers. However, developers with high leverage might face challenges due to weak liquidity and limited ability to raise equity or monetize assets.
In the commercial real estate sector, net leasing is anticipated to remain stagnant this fiscal year at 32-34 million square feet due to slower incremental leasing demand from certain sectors. However, amendments in the Special Economic Zones Act, 2005, and growing demand from global capability centers (GCCs) and domestic enterprises are expected to drive net-leasing growth to 12-15% next fiscal year.
Despite stagnant leasing demand, entities rated by Crisil Ratings are likely to maintain stable credit profiles, with comfortable leverage ratios and healthy debt-service coverage ratios during this and the following financial years.
(Source: Business standard)