Growth in housing prices may moderate this fiscal to 5% annually: India Ratings

Housing demand and prices are likely to moderate this fiscal on a high base effect with sales expected to rise 8-10 per cent and rates by around 5 per cent annually, India Ratings and Research (Ind-Ra) said on Tuesday. The rating agency has maintained a neutral outlook for the residential real estate sector for the 2024-25 fiscal. "Absorption and prices are likely to be supported by affordability and stability of interest rates. However, given the high base of FY24, the growth rates are likely to taper down," Ind-Ra said in a statement.

The residential real estate market registered a strong performance during the first nine months of the 2023-24 fiscal where the sales growth exceeded 25 per cent year-on-year (Y-o-Y) for the top eight real estate clusters, despite price increases and sticky interest rates. "With most regions witnessing a surge in prices, Ind-Ra expects the pre-sales growth to moderate to 8 to 10 per cent yoy in FY25. Inventory levels have also risen over FY24 in the premium and luxury segment, as launches increased encouraged by the sharp rise in sales and realisations," said Mahaveer Shankarlal Jain, Director, Corporate Ratings, Ind-Ra.

The rating agency said the prices have been higher by 22 per cent Y-o-Y at the end of FY24 and would be subdued at around 5 per cent Y-o-Y for FY25, due to the base effect and large amount of new launches planned. "With most of the old-stock cleared and existing inventory largely liquidated along with a continued pick-up in demand and a spike in commodity prices due to geopolitical tensions, prices surged by almost 14 per cent Y-o-Y in FY23 along with an increase in land prices and rental yields," it said.

Ind-Ra noted that demand is getting shifted towards mid and Upper-mid-income segments from luxury and premium segments. While the premium and luxury segments witnessed sharp demand growth in the first nine months of the last fiscal, Ind-Ra said the demand would cool down due to the high base as the unsold inventory levels remain elevated and are the highest over the past five years.The rating agency also expects tier II and III cities to report significant growth.