Housing demand will remain firm despite rising prices and interest rates: Crisil

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oi Sunil Fernandes

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The momentum in housing demand in India’s six major cities is expected to continue this fiscal year and grow between 5% and 10% despite rising property prices, interest rates and a spillover effect. base high, said CRISIL.

Housing demand will remain firm despite rising prices and interest rates: Crisil

Leverage and credit profiles of real estate developers, which strengthened on the back of the recovery in fiscal 2022, should hold up over the medium term.

CRISIL estimates that housing demand increased a solid 33-38% in the last fiscal year, surpassing pre-Covid-19 levels. But this was on a low fiscal 2021 basis, when demand had fallen 20-25%.

Affordability, after improving as much as 20% between fiscal years 2016 and 2021, had started to decline since the second half of fiscal year 2022. The headwinds now are higher principal values ​​and interest rates, the reinstatement of the stamp duty and the high base effect of fiscal year 2021, CRISIL Research’s proprietary index indicates.

Says Aniket Dani, Director of CRISIL Research: “We expect residential real estate prices to rise 6-10% in the top six cities this fiscal year due to a sharp rise in material costs and a dynamic relatively favorable supply and demand, especially for established developers.3 Some of them have started to increase prices by ~2% per quarter and may continue to do so for the next two fiscal years to account for rising land prices. However, despite these headwinds, housing demand is likely to grow 5-10% on the back of favorable demographics and urbanization.”

Inventory levels in most of the six major cities are in a comfortable 2-4 year window compared to 3-5.5 years before the pandemic. The correction occurred due to fewer releases in the last two years due to the pandemic and slower sales momentum. Although new launches are expected to catch up, healthy demand will keep inventory levels in check in the medium term. This will be largely driven by established developers, who will benefit from boosting sales, shift in demand to organized players, strong balance sheets, and an asset-light approach.

These real estate agents will continue to gain market share, grabbing 24-25% of the loot by March 2022, compared to 18% at the start of the pandemic. In fiscal 2021, its sales grew 13%, while the industry shrank 20-25%; in fiscal 2022, sales from these developers are estimated to have grown 35-40%, in line with the industry.

Says Kshitij Jain, Associate Director at CRISIL Ratings: “Established developers now have stronger balance sheets, reflected in a comfortable debt-to-total-assets ratio of 25% in the last fiscal year versus over 40% at the start of the fiscal year. pandemic. They are also well placed in terms of liquidity, having raised ~Rs 13,000 crore through equity and monetization of land and business assets in the last two fiscal years. Their improved finances will be helpful in funding growth and keeping revenues stable. credit profiles.



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