Residential property sales are expected to see a marginally lower growth rate of 10-12% in FY26 compared with 12-14% in FY25, Crisil Ratings said on Tuesday. Average prices are anticipated to rise 4-6% over the medium term, following double-digit growth in the previous two financial years, it said.
In the three financial years till FY25, housing sales clocked a compound annual growth rate (CAGR) of around 26%, it said, adding housing demand registered a CAGR of around 14% and the balance was contributed by the growth in realisations.“Residential real estate developers will see stable sales growth this financial year and the next as demand steadies after three years of post-pandemic recovery. Demand or volume (sales booking in million sq ft) is seen rising 5-7% and average prices 4-6%,” it said.
In FY25, demand was flat because of elevated capital values and delay in launches in some cities due to state elections and changes in property registration rules, it said. “This financial year and the next financial year, demand growth is expected to rebound driven by improving affordability on account of lower interest rates and normalisation of price growth. Demand growth will further be supported by sustained demand for premium and luxury houses and smoother launches across key micro markets, as the previous issues causing delays in launches abate,” it said.
With supply expected to continue exceeding demand, inventory levels should inch up this and next financial years. But strong collections and deleveraged balance sheets of developers will keep their credit profiles healthy, it said. “Premium and luxury segments in the top seven cities have witnessed a significant surge, with their share of launches increasing from 9% in 2020 to 37% in 2024,” said Gautam Shahi, director, Crisil Ratings. This can be attributed to rising incomes and urbanisation, which have fuelled the desire for larger, more luxurious living spaces. As the trend of premiumisation continues, the premium and luxury segments are expected to account for 38-40% of total launches in 2025 and 2026. With the growth in these segments normalising, the average price is anticipated to grow at a steady rate of 4-6% over the medium term, following the double-digit growth seen in the previous two financial years, Shahi said.
In contrast, affordable- and mid-segments are likely to account for a relatively low share of launches — 10-12% and 19-20%, respectively, — in calendar years 2025 and 2026. This represents a significant decline from their respective shares of 30% and 40% in 2020, as rising land and raw material costs rendered these segments less viable for developers, it said.In anticipation of robust demand growth, developers ramped up launches over the past three financial years, resulting in overall supply outpacing demand during the period. As supply is likely to continue outpacing demand this financial year and the next, the inventory is likely to inch up to 2.9-3.1 years from 2.7-2.9 years in the previous two financial years.
However, robust collections, driven by strong sales and timely project execution, as well as the increasing adoption of asset-light models such as joint ventures and joint development of projects, have helped developers significantly deleverage their balance sheets.
This trend has been further bolstered by substantial equity inflows, as reflected in the notable increase in qualified institutional placement (QIP) volume for our sample set of developers, wherein the QIP proceeds as a percentage of outstanding debt jumped to 24% last financial year up from 13-16% in the preceding three financial year, it said“The significant increase in QIP proceeds and the continuing improvement in cash flow from operations (CFO), which is the operating surplus generated from collections after accounting for construction, operating and committed land costs, has contributed to strong credit metrics for the developers. That, along with deleveraged balance sheets, will improve their debt-to-CFO ratio slightly to 1.1-1.3 times in this fiscal and the next from 1.2-1.5 times over the past two fiscals,” said Pranav Shandil, associate director, Crisil Ratings.To put in perspective, the ratio was as high as around 5.6 times in FY20. That said, the ability of developers to maintain low-to-moderate leverage and prudence in controlling inventory at reasonable levels will remain monitorable.