Large listed residential builders will clock sales growth of about 25% year-on-year in the financial year 2022-23 and 10-15% on that high base next fiscal, according to a recent study by CRISIL Ratings.
This is despite a moderation of up to 15% in affordability since the second half of last fiscal — though it remains better than before the pandemic — as capital values and interest rates have increased, stamp duty has been reinstated in some places, and inflationary pressures continue.
Gautam Shahi, director of the company said, “Large realtors in our sample set will likely account for 40-45% of new launches this fiscal versus less than 30% before the pandemic This will mean an increase in their market share to ~24% this fiscal and ~25% by fiscal 2024, compared with ~14% before the pandemic.”
The company expects residential prices to rise 6-10% this fiscal and a further 3-5% in the next across the top six cities i.e Mumbai Metropolitan Region, National Capital Region, Bengaluru, Pune, Hyderabad, and Kolkata because of a steep increase in raw material, labour and land costs, and relatively favourable demand-supply dynamics.
Inventory levels in the top six cities have corrected to a comfortable 2.5 years on average, as against four years before the pandemic because of fewer launches in the past two years and faster sales momentum. Although new launches
are catching up, healthy demand will keep the inventory levels in check over the next 2-3 years at 2.5-2.75 years, according to the study.
Further, the composition of inventory has changed in the wake of the pandemic. Luxury inventory, or homes priced
above Rs 1.5 crore, now comprise 40-45% in value versus 25-30% before the pandemic, while the share of affordable
homes, priced below Rs 40 lakh, has declined to ~10% from ~30%, according to CRISIL.
This, too, has benefitted large developers, which have a smaller share of affordable homes. While launches in the
affordable segment are expected to pick up, the mid-to-premium segment will dominate over the medium term.
Large developers have also benefited from deleveraging. Strengthening of capital structure through equity raise and monetisation of assets over the last two fiscals have helped them sail through the pandemic. That, along with strong sales momentum, will improve their debt to total assets ratio significantly, said Kshitij Jain, associate director of the company.
The surplus generated will help developers fund future launches and land acquisitions. Opportunities through joint
ventures and joint development will help them sustain growth without compromising their credit risk profiles.