Growth in Housing Prices Expected to Moderate to 5% Annually in FY25: India Ratings and Research (Ind-Ra) Report

India's residential real estate sector is poised for a nuanced shift as India Ratings and Research (Ind-Ra) anticipates a moderation in growth for the fiscal year 2024-25. Despite a buoyant performance in the previous fiscal, the sector is expected to encounter challenges attributed to the high base effect and burgeoning inventory levels. This are different multifaceted factors driving this projected trend and elucidates its far-reaching implications for the housing market.

Moderation in Growth:

India Ratings maintains a cautiously neutral outlook for the residential real estate sector for FY25, projecting a notable moderation in the growth trajectory of housing prices. Sales are anticipated to experience a modest rise of 8-10% annually, while housing prices are forecasted to ascend by approximately 5% annually.

Drivers of Growth:

Affordability and the stability of interest rates are poised to underpin housing demand and prices. However, the growth rates are anticipated to decelerate in comparison to the robust performance witnessed in the preceding fiscal, primarily due to the impact of the high base effect.

Performance in FY24:

The residential real estate market demonstrated commendable resilience and vigor during the initial nine months of FY23-24, registering a substantial sales growth that exceeded 25% year-on-year (YoY) across the top eight real estate clusters. Despite prevailing challenges such as price escalations and persisting interest rates, the sector sustained its robust growth momentum.

Price Trends:

Housing prices witnessed a commendable surge of 22% YoY by the culmination of FY24, propelled by factors including escalated sales, enhanced realizations, and burgeoning land prices. Nonetheless, Ind-Ra foresees a moderation in prices to approximately 5% YoY in FY25, attributable to the base effect and the planned introduction of a significant number of new projects.

Shift in Demand:

A discernible shift in demand dynamics is discernible, with preferences gradually veering towards mid and upper-middle-income segments, signaling a departure from the erstwhile emphasis on luxury and premium segments. The pronounced elevation in unsold inventory levels within the premium and luxury segments is anticipated to temper demand in FY25.

India's residential real estate sector stands at the cusp of a transitional phase, characterized by a projected moderation in growth against the backdrop of evolving market dynamics. While the sector braces for the anticipated challenges associated with the high base effect and burgeoning inventory levels, a cautiously neutral outlook and vigilant monitoring of market dynamics are advocated to navigate through the intricacies of the housing market landscape effectively.