India Ratings and Research (Ind-Ra) has released its latest credit digest on India’s residential real estate sector, highlighting sustained demand and price growth in 9MFY25 (April 2024 through December 2024), though signs of moderation are emerging due to elevated base effects and rising inventory levels.
Demand Remains Steady, but Growth to Taper
Despite global economic headwinds and high interest rates, India’s residential real estate market witnessed robust performance through 9MFY25. Homebuyer sentiment remained upbeat, driven by the perceived benefits of home ownership. According to Ind-Ra estimates, sales volumes grew by 32% year-on-year in FY24 across the top eight cities—Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai Metropolitan Region (MMR), National Capital Region (NCR), and Pune.
However, Ind-Ra projects that this momentum will begin to ease. Overall sales in FY25 are expected to rise by 17% year-on-year to 593 million square feet, before slowing to 9% in FY26. The moderation is attributed to a high base and rising price levels. Notably, Chennai recorded the highest bookings growth at 46% year-on-year in 9MFY25, while MMR emerged as the largest market by volume, accounting for 25% of total sales.
Inventory and Launch Activity Rise
Inventory levels saw a slight uptick in 9MFY25, with unsold stock reaching 1,027 million square feet by December 2024, compared to 1,017 million square feet a year earlier. This is linked to sustained new launches, though the overall quarters-to-sell (QTS) metric improved to 7 quarters from 9, reflecting higher trailing sales volumes.
Launch activity has been moderate in recent quarters. While FY23 saw a 26% spike in new launches, the pace eased to 8% in FY24 and 9% in 9MFY25. The launch-to-sales ratio dropped to 0.96x in 9MFY25, down from 1.17x in FY24 and 1.39x in FY23. The moderation in launches and sustained demand has helped contain oversupply risks in the near term. Nevertheless, Ind-Ra anticipates continued strong launch activity in FY26, owing to land acquisitions and business development initiatives undertaken in FY24 and FY25.
Price Growth Slows, Segmental Trends Emerge
After recording a significant 21% rise in FY24, average prices across the top cities increased by 8% in 9MFY25. Ind-Ra expects further moderation to 3%-4% year-on-year in FY26, due to the base effect and the potential inventory increase. Among the cities, Bengaluru led price growth at 23% in 9MFY25, followed by NCR (13%) and Pune (12%).
Demand remained segmented. The affordable housing segment saw an 11% year-on-year decline in sales in 9MFY25, with its overall share dropping to 18% in FY24 (FY23: 27%). In contrast, the mid-income segment dominated across major markets—Pune (52%), Ahmedabad (43%), Bengaluru (38%), and Chennai (35%). The upper mid-income segment gained prominence in Hyderabad (45%) and NCR (22%).
Developer Financials and Sector Outlook
Despite a decline of about 8% in pre-sales volumes for listed real estate players in 9MFY25, EBITDA rose 26% year-on-year, supported by improved realisations and faster project executions. The sector’s gross interest coverage ratio strengthened to 3.72x (9MFY24: 3.41x), reflecting healthier cash flows.
Disbursements from housing finance companies to the sector continued to grow steadily, while non-bank finance companies saw a persistent decline in real estate assets under management—a trend in place since FY19, despite improved liquidity conditions.
Outlook for FY26
Ind-Ra has maintained a neutral outlook for the residential real estate sector for FY26. Bookings are expected to rise at a slower pace due to affordability pressures and a high base. The NCR, Bengaluru, and MMR markets are projected to remain relatively resilient, though luxury segment demand may soften.
While Tier II developers gained momentum in FY24 and 9MFY25 amid affordability concerns, Ind-Ra expects Tier I players to retain a dominant position due to brand strength and sector consolidation. However, this consolidation trend is expected to gradually moderate in FY26.
In summary, while the residential real estate sector remains fundamentally strong, a gradual moderation in growth and price momentum, coupled with increasing inventory, will shape the market trajectory in FY26.
