Ratings and research firm ICRA has revised the outlook for residential real estate outlook to stable from negative for the current financial year 2022-2023, supported by healthy sales traction and declining inventory overhang.
The healthy sales momentum is expected to sustain, with the sales in top seven cities expected to grow by 3% in FY23 on a high base of FY22. New launches are expected to be at a six-year high of 400 million square feet during the year, showing improvement from the previous two years which were impacted by the Covid-19 pandemic, the firm said in a statement.
Increasing preference for home ownership, improved affordability, all-time-low home loan interest rate, among other factors, will be driving growth for the sector. The larger and reputed builders with better delivery track record will continue to gain market share.
Mathew Kurian, vice-president, ICRA, said, “The sharp recovery in demand in the aftermath of Covid has improved pricing flexibility, particularly in completed projects. In FY23 as well, the prices are expected to be hiked, depending on the project specific sales traction, to compensate for the rise in construction cost seen in the recent quarters.”
Healthy demand prospects and pricing flexibility in completed projects can help developers to maintain profitability margins. Additionally, even with an increase in interest rate on home loans by 50-75 basis points from current levels, the demand is expected to remain firm.
New launches are expected to be ramped up significantly, supported by reduced unsold inventory levels and steady demand. “We expect launches to be 21% higher than the estimated launches of 330 million sq ft in FY22”.
Despite the expected growth in launches the inventory position is expected to remain comfortable during the year primarily on the back of steady sales. On the back of the comfortable inventory position and sales, the years to sell is expected to trend to around two years as against 2.6 years as on close of FY21.
However, the ability of the developers to increase prices without adversely affecting sales in the backdrop of any prolonged increase in raw material prices, and extent of new launches will be key monitorables for the industry, Kurian said.