ICRA revises residential real estate outlook for fiscal 2023 to stable from negative

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HIGHLIGHTS

  • Despite the expected growth in launches, the inventory position should remain comfortable in fiscal 2023, mainly thanks to stable sales.
  • Thanks to the comfortable inventory and sales position, years to sell are expected to trend to around 2 years in fiscal 2023, from 2.6 years at the end of fiscal 2021.
  • The ability of developers to raise prices without affecting sales amid prolonged increases in commodity prices and the scale of new launches will be key for the industry.

New Delhi: ICRA has revised the residential real estate outlook for fiscal 2023 from stable to negative, supported by strong multi-year sales, which are driven by a growing preference for home ownership, improved affordability , a historically low interest rate on home loans, among other factors.

Sales momentum is expected to continue, with sales in the top seven cities expected to increase 3% in fiscal 2023, from a high base in fiscal 2022. Volume growth in fiscal 2022 has supplemented by an improvement in average realization due to product mix changes and implemented price increases, the ratings and research firm said in a report.

Giving more information, Mathew Kurian, Vice President of ICRA, said: “The strong recovery in demand following Covid has improved pricing flexibility, particularly in completed projects. Also in fiscal 2023, prices are also expected to be increased, depending on the traction of project-specific sales, to offset rising construction costs seen in recent quarters. Healthy demand prospects and pricing flexibility in completed projects can help developers maintain profit margins. Moreover, even with an increase in interest rates on mortgages of 50 to 75 basis points from current levels1, demand should remain firm.”

Despite the expected growth in launches, the inventory position should remain comfortable in fiscal 2023, mainly thanks to stable sales. Thanks to the comfortable inventory and sales position, years to sell are expected to trend to approximately 2 years in fiscal 2023, from 2.6 years at the end of fiscal 2021. However, the ability of developers to increasing prices without negatively affecting sales in the context of prolonged increases in raw material prices and the scale of new launches will be key controllable elements for the industry.

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New launches are expected to be accelerated significantly, supported by reduced unsold inventory levels and stable demand. We expect launches to be approximately 400 million square feet in fiscal 2023, 21% higher than the estimated 330 million square foot launches in fiscal 2022. Larger builders and reputable players with better delivery histories continue to gain market share while weaker players have yet to fully recover, Kurian added.

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