Housing Prices May Rise 5% In FY24; Rates Appreciate By 8-10% This Fiscal: India Ratings

Housing prices rose 8-10 per cent in this fiscal year and may further increase by 5 per cent in 2023-24, India Ratings and Research (Ind-Ra) said on Tuesday.The rating agency has revised the outlook on the residential real estate sector to neutral from improving for FY24.

"The residential real estate market continued its upward trajectory in FY23 (sales growth of 15 per cent year-on-year for top eight real-estate clusters) despite pressure from higher input costs, increasing mortgage rates, and domestic and global recession," Ind-Ra said in a statement. Recessionary and inflationary pressures could impact near-term demand slightly, it said, but expected the market to absorb the pressure.

The agency believed demand would pick up eventually. Overall, Ind-Ra expected the sales momentum to continue and housing sales to increase by 9 per cent year-on-year, supported by a steady, healthy demand. "Property prices have risen by 8-10 per cent year-on-year in FY'23, and might increase further by 5 per cent year-on-year in FY24," Ind-Ra said.

It pointed out that construction costs have risen 8-10 per cent year-on-year in FY23, with increased input costs causing the blended costs of developers to go up by 5-6 per cent year-on-year. "However, developers might not hike prices over the next six-to-seven months so as to handle any macroeconomic concerns and might wait for the demand dynamics to play out," the agency said. Ind-Ra noted that affordability had been a prime driver for housing sales in FY22.

"However, inflation compelled increase in selling prices by developers, and a series of repo rate hikes of 250 basis points since May 2022 have challenged demand dynamics in the affordable segment in FY23, while also causing mid and premium segment buyers to defer their purchases," the statement said.

Ind-Ra expects tier 1 players -- those having positive brand equity, a large scale of operations, high execution capabilities, strong refinancing abilities and healthy balance sheets -- to record a strong operating performance in FY24, given their increasing market share. Some tier 2 and marginal players would continue to struggle with poor sales, collections and liquidity, it added.