Stable demand, premium push to drive steady growth for real estate developers in FY26 and FY27: Crisil

Residential real estate developers will see stable sales growth this fiscal and the next as demand steadies after three years of post-pandemic recovery, according to a latest report by Crisil Ratings. Demand, or volume, is seen rising 5-7% and average prices 4-6%, with supply expected to continue exceeding demand, and inventory levels inching up.

"But strong collections and deleveraged balance sheets of developers will keep their credit profiles healthy."

Crisil's analysis of 75 real estate companies, accounting for 35% of the residential sales in the country, indicates that in the three fiscals through 2025, sales clocked a compound annual growth rate (CAGR) of 26%. Demand clocked 14% CAGR during the same period, with the balance being contributed by the growth in realisations.

Last fiscal, demand was flat because of elevated capital values and delays in launches in some cities due to state elections and changes in property registration rules. This fiscal and next, demand growth is expected to rebound, driven by improving affordability on account of lower interest rates and normalisation of price growth. Demand growth will further be supported by sustained demand for premium and luxury houses and smoother launches across key micro markets, as the previous issues causing delays in launches abate.

“The premium and luxury segments in the top seven cities have witnessed a significant surge, with their share of launches increasing from 9% in calendar year 2020 to 37% in 2024. This can be attributed to rising incomes and urbanisation, which have fuelled the desire for larger, more luxurious living spaces. As the trend of premiumisation continues, the premium and luxury segments are expected to account for 38-40% of total launches in calendar years 2025 and 2026," says Gautam Shahi, Director, Crisil Ratings.

Shahi says with the growth in these segments normalising, the average price is anticipated to grow at a steady rate of 4-6% over the medium term, following the double-digit growth seen in the previous two fiscals.

In contrast, the affordable and mid-segments are likely to account for a relatively low share of launches, 10-12% and 19-20%, respectively, in calendar years 2025 and 2026. This represents a significant decline from their respective shares of 30% and 40% in calendar year 2020, as rising land and raw material costs have rendered these segments "less viable" for developers.

In anticipation of robust demand growth, developers ramped up launches over the past three fiscal years, resulting in overall supply outpacing demand during the period. As supply is likely to continue outpacing demand this fiscal and the next, the inventory is likely to inch up to 2.9-3.1 years from 2.7-2.9 years in the previous two fiscals, says Crisil. However, robust collections, driven by strong sales and timely project execution, as well as the increasing adoption of asset-light models such as JVs and joint development of projects, have helped developers significantly deleverage their balance sheets.

The trend has been further bolstered by substantial equity inflows. Pranav Shandil, Associate Director, Crisil Ratings, says the significant increase in QIP proceeds and the continuing improvement in cash flow from operations have contributed to strong credit metrics for the developers. "That, along with deleveraged balance sheets, will improve their debt-to-CFO ratio slightly to 1.1-1.3 times in this fiscal and the next, from 1.2-1.5 times over the past two fiscals. To put in perspective, the ratio was as high as ~5.6 times in fiscal 2020.”