Residential unit launches to surge by 15 per cent in FY2024, reaching decadal high: ICRA

New Delhi [India], November 6 : The residential real estate sector is poised for significant growth in India as residential unit launches are expected to surge by 15 per cent in the fiscal year 2024 (FY2024), reaching a decadal high of approximately 680 million square feet (msf) across the country's top seven cities, according to a report by Investment Information and Credit Rating Agency (ICRA).
According to a release, despite an increase in net debt levels due to higher land investments, the leverage of developers is expected to remain comfortable between 1.1 and 1.3 times in FY2024, supported by robust cash flows.
ICRA's outlook for FY2024 reflects the optimism surrounding the residential real estate sector. The anticipated high number of unit launches is attributed to several factors, including low inventory levels, comfortable years-to-sell (YTS), robust demand, and reasonably stable affordability.
As of June 2023, the inventory has decreased to 910 msf from 946 msf in March 2022. The YTS, calculated as unsold inventory divided by sales in the last 12 months, is low, thanks to healthy sales and well-planned launches.
In Q1 FY2024, the aggregated unit launches across the top seven cities amounted to 131 msf, which is comparable to the figure for Q1 FY2023. These cities include Mumbai, the NCR, Bengaluru, Hyderabad, Pune, Kolkata, and Chennai.
Anupama Reddy, vice president and co-group head, Corporate Ratings, ICRA, commented on the residential sector's outlook, stating, "The outlook on the residential real estate sector is stable. Though the sales growth rate is likely to moderate in FY2024 on a high base of FY2023, ICRA expects the overall sales velocity, collections and inventory position to remain healthy".
Reddy said, "ICRA expects the sales to increase by 9-11 per cent. The net debt levels may increase by around 20 per cent in FY2024, given the increased land acquisition for new business development by developers in addition to the increase in construction finance debt due to a ramp-up in project execution. Nonetheless, the leverage, as measured by net debt/cash flow from operations, is expected to remain comfortable between 1.1 times and 1.3 times in FY2024, supported by healthy cash flows."
"ICRA expects the area sold in the top seven cities in India to increase by 8-9 per cent to 650 msf in FY2024 on a high base of FY2023. Area sold in the top seven cities in Q1 FY2024 increased 22 per cent YoY, while it moderated 8 per cent QoQ sequentially and reached 158 msf. In FY2023, the residential sales have seen healthy growth of 34 per cent YoY backed by strong consumer sentiment, healthy and pent-up demand," Reddy added.
"The sales consistently reached new peaks in each successive quarter over the past seven quarters (except Q1 FY2023 and Q1 FY2024; given that first quarters are traditionally laggards) despite an increase in the policy rates translating to higher home loan interest rates and rising property prices. With the launches expected to be at a decadal high in FY2024, the replacement ratio is estimated to inch to slightly above one time in FY2024, compared to 0.98 in FY2023," Redyy said.
ICRA expects residential sales to increase by 9-11 per cent in FY2024.
Further, ICRA anticipates the area sold in India's top seven cities to grow by 8-9 per cent to reach 650 msf in FY2024, building on a strong base from FY2023.
In Q1 FY2024, the area sold saw a substantial YoY increase of 22 per cent, although it moderated by 8 per cent compared to the previous quarter, reaching 158 msf.
Despite increased policy rates leading to higher home loan interest rates and rising property prices, the residential sales experienced robust growth of 34 per cent YoY in FY2023.
Notably, the average sale price (ASP) surged by 11 per cent in FY2023, driven by a shift in the product mix towards more luxury units and pricing flexibility.
With residential unit launches expected to reach a decadal high in FY2024, developers aim to meet changing consumer demand and preferences, especially in light of the pandemic-induced desire for larger living spaces.
The residential real estate sector in India is poised for growth in the coming fiscal year, building on a strong foundation from FY2023, with a focus on quality and innovation to cater to evolving consumer needs.