ICRA expects the area sold in the top seven cities[1] in India to increase by 10-12% to 785-800 msf in FY2025, on a high base of FY2024. Despite the moderation in the sales growth rate, the overall sales velocity, collections, and inventory position are estimated to remain healthy. The launches are expected to rise by 12% in year-on-year (YoY) terms to 767 million square feet (msf) in FY2025, on an aggregate basis across the top seven cities, supported by decadal low inventory, comfortable years-to-sell (YTS, calculated as unsold inventory/sales in last 12 months) and healthy demand. The inventory declined to 687 msf as of June 2024 from 732 msf as on March 2023 and the YTS remained low at 0.9 time as of June 2024, backed by healthy sales and calibrated launches.
Giving more insights,Anupama Reddy, Co-Group Head & Vice President– Corporate Ratings, ICRA,said: “With epic sales and low leverage, the dream run continues for residential real estate players. The residential sales witnessed a healthy growth of 19% YoY in FY2024. The sales consistently reached new peaks in each successive quarter over the past eight quarters (except Q1 FY2024 and Q1 FY2025, given that the first quarters are traditionally laggards) despite elevated home loan interest rates and rising property prices. Area sold in the top seven cities in Q1 FY2025 witnessed moderate growth of 7% YoY due to lower launches, which are deferred to subsequent quarters. Despite a sluggish first quarter, ICRA expects double digit growth in residential sales in the top seven cities driven by strong end-user demand and healthy albeit moderating affordability. The replacement ratio (calculated as launches/sales in last 12 months) stood at 0.9 time and is likely to sustain around 1 time for FY2025.”
Exhibit: Quarterly trend in sales, new launches and replacement ratio in top seven cities
Source: Propequity, ICRA Research
While the gross debt is expected to increase by 6-7% [2]in FY2025, for new business development, in addition to the increase in construction finance debt, due to a ramp-up in project execution; the leverage measured by the ratio of gross debt to cash flow from operations (CFO) is likely to remain comfortable in the range of 1.55-1.60 times as of March 2025 compared to 1.63 times as of March 2024 due to an increase in the CFO.
Commenting on the outlook for FY2025, Reddy said: “The average sale price (ASP) rose by 11% in FY2024 on a YoY basis and is expected to further increase by 5-6% in FY2025. This is driven by a change in the product mix with a higher share of luxury units and pricing flexibility arising out of healthy sales and the resultant lower inventory overhang. Given the pandemic-induced desire for larger spaces and changing consumer demand, the developers have accordingly realigned their launches. Leverage is estimated to remain comfortable as of March 2025 despite the expected increase in gross debt levels, supported by healthy cash flows. The outlook on the residential real estate sector is Stable.”
[1] The top seven cities include Mumbai Metropolitan Region (MMR), National Capital Region (NCR), Bengaluru, Hyderabad, Pune, Kolkata, Chennai
[2] Based on ICRA’s sample set which includes Sobha Limited, Ashiana Housing Limited, Puravankara Limited, DLF Limited, Brigade Enterprises Limited, Keystone Realtors Limited, Prestige Estate Projects Limited, Mahindra Lifespace Developers Limited, Godrej Properties Limited and Macrotech Developers Limited.
