Synopsis
The current housing sales uptick and increased demand is end-user driven and not speculative. Hence, the hike in prices will be sustainable and is likely to be incremental. Prices were up 6% pan-India in 2021-22, India Ratings said.
AgenciesThe recovery momentum in Indian residential real estate witnessed in 2021-22 is expected to be continued in the current financial year 2022-23, said ratings agency India Ratings and Research (Ind-Ra) while maintaining an improving outlook for the residential real estate for the ongoing financial year.
Between adapting to the pandemic’s impact, industry issues and government policies, the Indian real estate sector is expecting a robust end-user demand in 2022-23. The steady performance and quick revival during the last financial year have likely helped the sector regain buyer’s trust.
The ratings agency expects the housing growth momentum to continue on the back of a strong demand in 2022-23. It expects that housing sales to rise around 12% on-year in 2022-23.
In 2021-22, for the top eight real estate clusters, housing sales increased 42% from a year ago on a pandemic-impacted lower base. In 2022-23, Ind-Ra expects established and trusted developers to witness better sales, and affordable housing segments to continue to claim around 50% share of the total sales.
The current housing sales uptick and increased demand is end-user driven and not speculative. Hence, the hike in prices will be sustainable and is likely to be incremental. Prices were up 6% pan-India in 2021-22, India Ratings reported.
Furthermore, the housing sales surge in India has not been accompanied by a sharp rise in prices so far. After a prolonged period of decline, prices stabilised in the past few years. Ind-Ra expects the price appreciation of residential property in 2022-23 to be around 8% at pan-India level, led by Bangalore, Mumbai, Pune and Hyderabad.
The cost of deposits has reduced over the past few years, and subsequently lenders have been passing the benefits to borrowers. The benchmark rates declined sharply in FY22 (SBI MCLR rate – 6.65%) since FY20 (SBI MCLR rate – 8.5%).
Real estate buyers are benefiting in terms of savings in mortgage costs. A low mortgage rate accompanied by a rising income level in most of the sectors mainly IT/ITES, BFSI, pharma has led to improved affordability in the market.
Housing demand has significantly increased with a substantial push from millennials. India is home to over 400 million millennials, comprising one-third of the total population and 46% of the total workforce, which keep on increasing year on year. There is a high influx of immigrant population into metropolitan cities every year.
The total millennial population has increased by 60 million over the past 10 years. This generation used to mostly opt for rented houses, but the preference has changed due to the worldwide disruption caused by the COVID-19 pandemic. The narrowing of gap between rental yield and interest rate, which is a primary criterion for first-time home buyers, is influencing buying decisions.
Ind-Ra expects tier I residential players to generate strong sales in 2022-23 due to the ongoing consolidation in the market. As home buyers remain wary of under construction projects by Tier II developers, there has been formalisation of the sector with Tier I and strong local players gaining market share and brands winning the customer preference.
The ratings agency emphasises on cash flow measures for assigning credit ratings to real estate players. With accelerated sales and collections, completed and advanced stages of inventory and significant deleveraging in the past few years, there has been an improvement in the operational cash flow, and liquidity ratio is likely to remain robust at 2.4x-2.9x for tier I players over FY22-FY23. In comparison, the liquidity ratio is likely to hover marginally above 1.7x-2.0x for non-tier I players.
Sunday, 21 May, 2023
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