Housing Prices Could Rise 5% In FY24, Says India Ratings (2024)

Housing prices rose 8–10% in this fiscal year and may further increase by 5% in 2023–24, India Ratings and Research (Ind-Ra) said on Tuesday.

The rating agency has revised the outlook on the residential real estate sector to 'neutral' from 'improving' for fiscal 2024.

"The residential real estate market continued its upward trajectory in FY23 (sales growth of 15% year-on-year for the top eight real estate clusters) despite pressure from higher input costs, increasing mortgage rates, and the domestic and global recession," Ind-Ra said in a statement.

Meanwhile, it added that recessionary and inflationary pressures could impact near-term demand slightly, but the market will likely absorb the pressure.

The agency believes that demand will pick up eventually. Overall, Ind-Ra expected the sales momentum to continue and housing sales to increase by 9% year over year, supported by a steady, healthy demand.

"Property prices have risen by 8–10% year-on-year in fiscal FY23 and might increase further by 5% year-on-year in FY24," the rating agency said. It pointed out that construction costs have risen 8–10% year-on-year in the financial year 2023, with increased input costs causing the blended costs of developers to go up by 5–6% year-on-year.

"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," the agency said. Ind-Ra noted that affordability had been a prime driver for housing sales in FY22.

"However, inflation compelled an 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 FY23, while also causing mid- and premium-segment buyers to defer their purchases," the statement said.

Ind-Ra expects tier 1 players—those having positive brand equity, a large scale of operations, high execution capabilities, strong refinancing abilities, and healthy balance sheets—to record a strong operating performance in fiscal 2024, given their increasing market share.

While some tier 2 and marginal players would continue to struggle with poor sales, collections, and liquidity, it added