Real-estate companies had a good run for the last two years. They sold flats, collected payments, and used the money to pay off old loans instead of borrowing more. That phase is now ending, according to a Nuvama Institutional Equities report.
Developers retain less cash from sales
When a developer collects money from home buyers, only part of it becomes actual profit. The rest goes into construction costs, land payments, and other expenses. In FY25, developers kept about Rs 42 out of every Rs 100 collected as cash profit. In FY26, that fell to Rs 39. The drop happened mainly because fewer flats got sold right at launch, when developers usually make the most money. Sales later in a project’s life bring in less, the report noted.
Land and rental bets keep spending high
At the same time, developers did not slow down on spending. Investment in land and in rental assets like malls, offices and hotels stayed high, at 38% of the money collected in FY26. That was only slightly lower than the 40% spent in FY25.
Developers are pushing into rental assets because such properties bring in steady income every month, unlike flat sales which depend on how the market is doing at any given time.
More developers end FY26 in the red
As per the report, most developers spent more cash than they brought in during FY26.
Only three out of the 21 companies tracked actually ended the year with surplus cash after all their spending. That is down from four companies in FY25 and eight in FY24. The rest ran a cash shortfall.
Developers turn back to borrowing
Last year, developers filled this kind of gap by selling shares to investors. That source of funding dropped sharply in FY26. Money raised through share sales fell to 17% of total cash inflows, from about 47% the year before.
To make up for it, developers borrowed more. Debt funding rose to 25% of total cash inflows in FY26, up from just 3% in FY25. Puravankara, Godrej Properties, Rustomjee and Prestige Estates were among those that leaned most heavily on loans during the year.
The report noted that overall borrowing levels are still well below what they were in earlier real estate cycles, so the shift is not seen as risky at this stage.
DLF stands apart from the rest
The report noted that DLF did not follow the same pattern. The company paid off all its debt in its core property development business during FY26 and ended the year holding surplus cash, without having to sell any shares to raise money.
It earned more cash than any other developer in the sector after accounting for its spending, helped by steady income from its rental business and quick collections from buyers. Sobha and Oberoi also managed to cut their debt during the year without raising fresh equity, the report noted.
Furthermore, the report stated that Brigade and Prestige Estates were on the other end. Both spent heavily on rental assets and ended up with the largest cash shortfalls in the sector. Lodha, Godrej Properties and Rustomjee also spent more than they earned, mainly due to land purchases.
The next phase: more debt, slower growth
Nuvama expects developers to keep borrowing gradually more in the coming quarters, as spending on land and rental projects continues. The industry’s debt compared to its equity has already gone up slightly, from 0.02 times at the end of FY26 to 0.05 times by June 2026, as per the report.
Home prices are expected to rise more slowly from here, which will make it harder for developers to improve their profit margins the way they did before. Meanwhile, the heavy spending on new projects is unlikely to let up soon. Prestige Estates remains Nuvama’s preferred pick in the sector, with a buy rating on the stock.