NEW DELHI: Residential real estate developers are projected to achieve stable sales growth of 10-12% in the current and upcoming financial year, as housing demand normalizes after a three-year post-pandemic recovery, according to an ICRA analysis.
This growth is anticipated to stem from a combination of 5-7% volume increase and 4-6% escalation in average prices, supported by decreasing interest rates, improved affordability, and sustained demand for premium and luxury homes. ICRA’s findings are based on a sample of 75 developers, representing about 35% of residential sales nationwide.
Over the three financial years leading up to FY2025, residential sales exhibited a compound annual growth rate (CAGR) of approximately 26%, driven by demand volumes increasing at a CAGR of around 14%, with the remaining growth attributed to higher average sale prices. However, it’s worth noting that demand remained relatively unchanged in FY2025 due to high property prices and delays in launching new projects in certain cities amid state elections and updates to property registration regulations.
The rating agency anticipates a resurgence in demand growth in the current and next fiscal years, buoyed by lower home loan interest rates and moderated price increases. Demand is also expected to be reinforced by ongoing interest in premium and luxury housing segments, along with smoother project launches as previous regulatory and administrative hurdles are resolved.
The proportion of premium and luxury housing within total launches across the top seven cities has significantly increased, from 9% in 2020 to 37% in 2024. The agency predicts these segments will comprise 38-40% of total launches in 2025 and 2026, reflecting rising incomes, urbanization, and a preference for larger and higher-quality homes.
Conversely, the share of affordable and mid-income housing is likely to remain subdued. Affordable housing is expected to make up 10-12% of launches, while the mid-income segment’s contribution is projected to be around 19-20% in 2025 and 2026, a considerable drop from 30% and 40% in 2020, respectively, due to increasing land and construction costs affecting project viability.
On the supply front, developers have escalated launches in the past three years in anticipation of robust demand, resulting in supply outstripping absorption. This trend is likely to persist, with inventory levels climbing to an estimated 2.9-3.1 years, compared to 2.7-2.9 years observed in the last two fiscal years.
Despite rising inventory levels, ICRA notes that developers’ credit profiles remain robust, supported by strong collections, timely project completion, and an increasing shift towards asset-light strategies such as joint ventures and joint development agreements. Additionally, balance sheets have strengthened following significant equity inflows, notably from qualified institutional placements (QIPs).
