Mumbai, Mar 10 (FN Bureau): India Ratings and Research (Ind-Ra) said on Wednesday that performance of residential real estate sector is expected to improve in FY22 from a weak base currently. Grade I players are likely to see a surge in growth from a moderately strong base while non-grade I players are likely to see a reversal of sharp decline experienced in FY21. Ind-Ra emphasised that overall sales in FY22 can still be around 14 per cent below FY20 level. It expects residential real estate sector to stage a sharp K-shaped recovery in FY22.
The overall floor space sold is likely to increase by 30 per cent year-on-year in FY22 after a 34 per cent decline in FY21. The recovery will likely be dominated by grade I players whose sales are likely to grow by 49 per cent in FY22 after a 14 per cent increase in FY21. Non-grade I players are also likely to see their sales rise by 26 per cent in FY22 after a 39 per cent decline in FY21. Affordability as measured by the ratio of house price index and salary index has steadily improved since FY15 as the average increase in salaries well exceeded the average increase in house prices.
Ind-Ra expects the improved affordability to help spur residential real estate demand. In some cities like Hyderabad and Bengaluru, rental yields can be 3 to 4 per cent higher in FY22. With mortgage rates falling below 7 per cent in FY22, the gap between rental yield and mortgage rates is narrowing and is likely to promote home ownership. Apart from a lower ratio of house price to salary, a lower interest rate environment is likely to improve the affordability of house ownership as mortgage rates decline.