Home prices set for steep 6-10% jump this fiscal and between 3-5% next financial year: Report

Home prices across the top six cities are set to jump 6-10 per cent this fiscal and 3-5 per cent in the next financial year because of a steep rise in raw material, labour and land costs, and relatively favourable demand-supply dynamics, a report said on Thursday.

The report by Crisil also said large residential realtors are on course to log a robust 25 per cent sales growth in 2022-23 and 10-15 per cent in the next fiscal. The unsold inventory level is down to 2.5 years from four years pre-pandemic, and this has credit profile of the large realtors strengthening, the report said.

The agency expects residential prices to rise 6-10 per cent this fiscal and a further 3-5 per cent in the next across the top six cities due to the steep increase in raw material, labour and land costs. This, however, has not impacted demand for residences adversely, given a strong preference for larger homes as the hybrid working model continues in many sectors, it added.

The top six realty markets are the Mumbai Metropolitan Region (MMR), the National Capital Region (NCR), Bengaluru, Pune, Hyderabad, and Kolkata. The companies covered by the report are Brigade Enterprises, DLF, Godrej Properties, Kolte-Patil Developers, Macrotech Developers, Mahindra Lifespace Developers, Oberoi Realty, Prestige Estates Projects, Puravankara, Sobha and Sunteck Realty.

The report said these realtors reported sales of Rs 31,000 crore in the first half of this fiscal, which is equal to their entire FY2020 haul, and should close this fiscal at Rs 65,000 crore, up a whopping 110 per cent from the pre-pandemic level.

According to Gautam Shahi, a director with Crisil, large developers will likely account for 40-45 percent of new launches this fiscal as against under 30 per cent before the pandemic. This will mean an increase in their market share to 24 per cent this fiscal and 25 per cent by FY2024, as against 14 per cent before the pandemic.

Inventory levels in the top six cities have corrected to a comfortable 2.5 years on average, as against four years before the pandemic because of fewer launches in the past two years and faster sales momentum. 

Also, the composition of inventory has changed since the pandemic which has seen luxury inventory, or homes priced above Rs 1.5 crore, now comprising 40-45 per cent of sales versus 25-30 per cent before the pandemic. The share of affordable homes, priced below Rs 40 lakh, has declined to 10 per cent from 30 per cent.

According to Kshitij Jain, an associate director with the agency, these realtors have strong balance-sheets now achieved through equity raising and asset monetisation worth Rs 18,000 crore over the past two fiscals.

This, along with strong sales momentum, will improve their debt to assets ratio significantly to 23 per cent by March 2023 and further to 21 per cent by March 2024, from 42 per cent at the start of the pandemic.