Lower interest rates, premiumisation trends, and healthier collections to support growth and credit profiles
India’s residential real estate sector is expected to sustain steady growth over this fiscal and the next, as sales and demand stabilize following three years of strong post-pandemic recovery, according to an analysis by CRISIL Ratings.
The report, covering 75 major real estate companies that account for ~35% of national residential sales, projects a compound annual growth rate (CAGR) in sales volumes of 5–7%, with average prices rising 4–6%. This translates to a steady 10–12% growth in value terms.
Demand Revival Supported by Lower Rates and Premium Housing
Last fiscal, demand remained flat, weighed down by higher capital values and delays in launches due to elections and regulatory changes in some states. However, the current and next fiscals are expected to see demand rebound on the back of:
- Improving affordability as interest rates soften
- Sustained appetite for premium and luxury homes
- Normalization of project launches across key micro-markets
“The premium and luxury segments in the top seven cities have seen their share of launches jump from 9% in 2020 to 37% in 2024,” said Gautam Shahi, Director, CRISIL Ratings.
“This trend is expected to continue, with premiumisation driving 38–40% of launches in 2025 and 2026.”
Premiumisation Redefining New Supply
In contrast to the rising prominence of premium housing, the affordable and mid-segments are expected to decline further, largely due to rising land and input costs that have rendered these categories less attractive to developers.
Launch Share by Segment (%):
| Segment | Share in 2020 | Share in 2024 | Estimated Share (2025–26) |
|---|---|---|---|
| Premium & Luxury | 9% | 37% | 38–40% |
| Mid-segment | 40% | ~25% | 19–20% |
| Affordable | 30% | ~20% | 10–12% |
Supply Still Outpacing Demand
Developers had already ramped up launches over the past three years, leading to supply outpacing demand. As this trend continues, inventory levels are expected to increase slightly:
- From 2.7–2.9 years in the past two fiscals
- To 2.9–3.1 years over the current and next fiscal
Deleveraged Balance Sheets and Strong Collections Underpin Stability
Despite the supply overhang, developers’ credit profiles have strengthened significantly due to:
- Robust collections from strong sales
- Timely project execution
- Adoption of asset-light development models (joint ventures, joint developments)
- Substantial equity inflows, especially through qualified institutional placements (QIPs)
In fact, the QIP proceeds as a percentage of outstanding debt rose from 13–16% in the preceding three fiscals to 24% last fiscal, reflecting growing investor confidence.
Debt Metrics at a Healthy Level
“The continuing improvement in cash flow from operations and rising equity inflows have strengthened credit metrics,” said Pranav Shandil, Associate Director, CRISIL Ratings.
“The debt-to-CFO ratio is projected to improve to 1.1–1.3 times this fiscal and the next, down from 1.2–1.5 times previously and significantly below the ~5.6 times seen in FY20.”
Key Credit Metrics Snapshot:
| Metric | FY20 | FY23–FY24 | FY25–FY26 (Estimate) |
|---|---|---|---|
| Debt-to-CFO ratio | ~5.6x | 1.2–1.5x | 1.1–1.3x |
| Inventory holding (in years) | ~4.0x | 2.7–2.9x | 2.9–3.1x |
| QIP proceeds / Debt (%) | ~5% | 13–16% | ~24% (FY24 Actual) |
Outlook: Prudent Leverage, Controlled Inventory Key to Stability
While the outlook remains positive, CRISIL notes that developers’ ability to maintain moderate leverage and control inventory will remain critical for sustaining credit strength.
The report underscores that premiumisation, improved affordability, and healthy cash flows will drive steady growth—albeit at more moderate rates compared to the surge seen in the immediate post-pandemic years.
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