India’s residential real estate market in the top 7 cities is poised for significant growth in the 2024-25 financial year, according to a recent report by ICRA. The area sold is projected to increase by 10-12%, reaching 785-800 million sq. ft, a continuation of the robust performance observed in FY24. Although the growth rate is expected to moderate, the overall sales velocity, collections, and inventory levels are anticipated to remain healthy, signaling a stable market environment.

Strong Performance in 2023-24

The real estate market in India’s major cities demonstrated strong performance in FY24, setting the stage for continued growth. ICRA reported a 19% YoY growth in residential sales for the year, with consistent peaks in quarterly performance, aside from the traditionally slower first quarters. The first quarter of FY25 saw a more modest 7% growth in area sales, attributed to deferred launches, but the overall outlook for the year remains positive with double-digit growth expected.

Increase in New Launches and Low Inventory

New residential launches are expected to rise by 12% YoY to 767 million sq. ft, supported by historically low inventory levels and a favorable years-to-sell (YTS) ratio. As of June 2024, inventory levels had declined to 687 million sq. ft from 732 million sq. ft in March 2023, reflecting healthy sales and controlled new launches. The low YTS ratio of 0.9 times is indicative of strong market absorption and a balanced supply-demand dynamic.

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Stable Market Conditions and Pricing Trends

The residential real estate sector is projected to maintain stable conditions in FY25, with the replacement ratio (launches/sales in the last 12 months) expected to hover around 1 time. This stability is further supported by a manageable affordability index and robust end-user demand, which are key factors driving the market.

Average Sale Price and Developer Leverage

The average sale price (ASP) in FY24 increased by 11%, and further growth of 5-6% is expected in FY25. This price appreciation is largely driven by a shift towards luxury units and greater pricing flexibility among developers. The residential sector’s outlook remains positive as developers adapt to evolving consumer preferences, particularly the growing demand for larger spaces and high-end amenities.

On the financial front, the gross debt for ICRA’s sample set of developers is anticipated to rise by 6-7% in FY25. However, leverage is expected to remain comfortable, with a debt-to-cash flow from operations ratio of 1.55-1.60 times, ensuring financial stability within the sector.

Adapting to Changing Consumer Preferences

As the Indian residential real estate market continues to evolve, developers are increasingly focusing on meeting new consumer demands. The shift towards larger living spaces, driven by changing lifestyles and work-from-home trends, is expected to influence future developments. Additionally, the sector's ability to adapt to these changes while maintaining affordability and quality will be crucial in sustaining growth.

Conclusion: A Positive Outlook for Residential Real Estate

In conclusion, India’s residential real estate market in the top 7 cities is set to experience healthy growth in FY25, driven by strong end-user demand, low inventory levels, and an increase in new launches. The sector's stability, combined with favorable pricing trends and manageable financial leverage, positions it well for sustained growth in the coming years. As developers continue to adapt to changing consumer preferences, the market is expected to remain dynamic and resilient, offering ample opportunities for both buyers and investors.

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