ICRA revises FY23 residential real estate outlook to Stable from Negative

22 Apr 2022 , 02:53 PM

ICRA has revised the FY2023 outlook for residential real estate to Stable from Negative, supported by multi-year high sales which in turn is driven by increasing preference for home ownership, improved affordability, all-time-low home loan interest rate, among other factors. The sales momentum is expected to sustain, with the sales in top seven cities expected to grow by 3% in FY2023, on high base of FY2022. The growth in volumes in FY2022 has been complemented by improvement in average realization as a result of changing product mix and price hikes implemented.

Giving more insights, Mr. Mathew Kurian, Vice President, ICRA says, “the sharp recovery in demand in the aftermath of Covid has improved pricing flexibility, particularly in completed projects. In FY2023 as well, the prices are also expected to be hiked, depending on the project specific sales traction, to compensate for the rise in construction cost seen in 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 bps 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 around 400 mn sft in FY2023, which is 21% higher than the estimated launches of 330 mn sft in FY2022. The larger and reputed builders with better delivery track record continue to gain market share while the weaker players are yet to fully recover.”

Despite the expected growth in launches the inventory position is expected to remain comfortable in FY2023 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 2 years in FY2023, as against 2.6 years as on close of FY2021. 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.