India's Housing Sector Surfing From Headwinds To Tailwinds

The Indian residential real estate (RRE) segment, which witnessed nearly a decade of sluggishness, has demonstrated remarkable resilience in the post-covid era. Prior to the pandemic, the sector was reeling under various challenges of demonetisation, the enactment of RERA, non-banking financial companies (NBFC) crisis, and pessimistic consumer sentiments, CareEdge Ratings has said in a report.

As the industry seemed to navigate these challenges, the pandemic posed a severe setback. However, after a brief hiatus, the pandemic also emerged as a catalyst for resurgence, as sentiments towards home ownership turned more positive than ever. This pandemic-induced demand was also augmented by significantly low interest rates, rising income levels, increased household savings and supportive policy initiatives such as stamp duty cuts from various state governments. 

Consequently, the favourable demand scenario led to consistent multi-year high sales in CY22 and CY23. The growth momentum in CY24 is likely to mark the third consecutive year of high bookings. Long-term growth drivers include urbanisation, nuclearisation and increased offshoring activities in tier-1 cities, which largely appear intact and continue to strengthen the job market. 

Additionally, Central and State government-backed infrastructure projects are significantly enhancing connectivity and accessibility, leading to the emergence of new real estate development zones. Government Initiatives such as RERA, Pradhan Mantri Awas Yojana (PMAY), and the Special Window for Affordable and Mid Income Housing (SWAMIH) Fund have improved transparency, supply, and affordability, boosting demand. 

Furthermore, robust institutional investments in CY23 and H1 CY24 indicate adequate capital availability for the RRE sector, according to the report. CareEdge Ratings anticipates that a favourable market scenario will persist over the next two years, with launches and sales growth rates moderating to 10 to 15 per cent. 

Strong demand is expected in the mid-income and premium segments. “With healthy sales momentum expected to continue and new launches calibrated to align with anticipated demand, inventory levels are expected to remain robust under 15 months”, said Divyesh Shah, Director CareEdge Ratings.

Developers are focusing on larger homes and premiumization while expanding their presence in India's major cities. Additionally, Environmental, Social, and Governance (ESG) factors along with technological integrations like digital property walkthroughs, property management systems, etc. are becoming increasingly relevant for enhancing sustainability and operational efficiency in the sector, he added.

Customer preference for established players is driving bookings during the initial construction phases, thus these players are often seen selling entire projects within a year of launch. “In FY24, the leading listed players collectively witnessed bookings of over Rs 1 trillion in FY24, marking a robust YoY growth of 36 per cent. A strong pipeline of collections along with increased adoption of asset-light growth strategy is expected to sustain a healthy leverage profile for these players, with, debt-to-collection ratio likely to remain below 0.70 times," stated Amita Yadav, Assistant Director, CareEdge Ratings.

CareEdge Ratings expects pre-bookings and collections for these players to exceed Rs 1,30,000 crore and Rs 80,000 crore in FY25, respectively, with robust growth of 15 to 20 per cent over FY24 levels. The credit profiles of established players are expected to remain stable supported by a comfortable cash flow position.