Mumbai, May 10 (FN Agency) Housing demand is expected to stay firm this fiscal and grow by 5-10 per cent despite the increase in interest rates and an expected rise in property prices, a recent report said on Tuesday. According to ratings agency Crisil, the momentum in housing demand across India’s top six cities is expected to continue this fiscal and grow 5-10 per cent despite rising property prices, interest rates and a high-base effect. On May 4, the Reserve Bank of India Governor Shaktikanta Das announced an increase in repo rate by 40 basis points to 4.40 per cent, in an attempt to tame the elevated inflation. Following the decision, many lenders including SBI, HDFC, Canara Bank, Indian Overseas Bank, PNB, Bank of India, and Union Bank, among others have increased their Repo Linked Lending Rates (RLLR).
According to Crisil Research Director Aniket Dani, residential real estate prices is expected to rise 6-10 per cent across the top six cities this fiscal due to a steep rise in material costs and relatively favourable demand-supply dynamics, especially for established developers. “Some of them have started hiking prices by nearly 2 per cent per quarter and may continue to do so over the next couple of fiscals to account for rising land prices. However, in spite of these headwinds, housing demand is likely to grow 5-10 per cent supported by favourable demographics and urbanization,” Dani added.
According to Crisil, housing demand rose a solid 33-38 per cent last fiscal, surpassing pre-Covid-19 levels. But this was on a low base of fiscal 2021, when demand had fallen 20-25 per cent The agency further noted that the leverage and credit profiles of real estate developers, which had strengthened on the back of recovery in fiscal 2022, should sustain over the medium term. These realtors will continue to gain market share, cornering 24-25 per cent of the spoils by March 2022, compared with 18 per cent at the start of the pandemic. In fiscal 2021, their sales grew 13 per cent, while the industry contracted 20-25 per cent; in fiscal 2022, sales of these developers are estimated to have grown 35-40 per cent, in line with the industry, the agency added.
“Established developers now have stronger balance sheets, reflected in a comfortable debt-to-total assets ratio of 25 per cent last fiscal versus more than 40 per cent at the start of the pandemic. They are also well-placed in terms of liquidity, having raised Rs 13,000 crore through both, equity and monetisation of land and commercial assets in the past two fiscals,” Kshitij Jain, Associate Director, Crisil Ratings, said. He further said that their improved financials will come in handy to fund growth and keep credit profiles stable. Crisil also believes that strong demand, lower inventory levels and strengthened capital structures auger well for the industry. “However, any aggressive debt-funded growth in the industry will bear watching over the medium term,” the agency noted.