According to a recent study by CareEdge Ratings, the listed real estate players are expected to witness robust growth in their pre-bookings and collections in FY25. The pre-bookings are forecast to exceed INR 1,30,000 crore, while the collections are expected to reach over INR 80,000 crore, representing a 15-20% increase from FY24 levels. The credit profiles of established players are anticipated to remain stable, supported by their comfortable cash flow positions.

The combination of solid collections and an asset-light growth model will likely maintain the robust balance sheets of leading listed companies. The aggregate debt-to-collection ratio is expected to remain below 0.70 times, indicating a healthy financial position.

CareEdge Ratings anticipates the housing demand to remain resilient over the next two years, with a projected growth of 10-15% in launches and sales. This demand is characterised by robust sales momentum, reduced inventory overhang, an increasing preference for premium units, rising land prices, and higher input costs, which are expected to lead to an inevitable increase in property prices.

In CY23, property prices rose by approximately 8% nationwide, with Hyderabad, Bengaluru, and Gurgaon experiencing the highest growth rates. Despite this price increase, buyer sentiment has remained largely stable. Based on the expectation of continued sales momentum, CareEdge anticipates that property rates across the country will rise between 7% and 10% in CY24, primarily driven by the end-user market.

The preference for reputed and established players has strengthened, leading to a strong performance by major residential real estate companies. In FY24, these companies achieved aggregate pre-sales exceeding INR 1 trillion, marking a significant year-on-year (YoY) growth of 36% over the 47% growth in FY23. Their robust operational performance resulted in increased collections, which doubled from INR 30,000 crore at the end of FY19 to over INR 67,000 crore by FY24. Developers effectively utilised these collections to manage their debt, reducing gross indebtedness from nearly INR 50,000 crore in FY19 to approximately INR 44,000 crore in FY24. As a result, the gross debt-to-collection ratio improved from 1.61 times in FY19 to 0.65 times in FY24.

Following an upswing in the housing market since FY22, the sector has maintained a higher credit ratio (the ratio of upgrades to downgrades). Although the credit ratio slightly declined in the past two fiscal years, it still stands high at over two times. This robust credit ratio has persisted despite recessionary fears and tighter monetary policies, indicating the sector's resilient financial performance.

Prior to the pandemic, the industry consistently witnessed a credit ratio of lower than one, primarily due to regulatory reforms, slow sales momentum, and liquidity crunch. The improved credit ratio can be attributed to enhancements in the operational profiles of companies as a result of improved sales, cash flow generation, and significant deleveraging.

The liquidity for most players is expected to remain adequate for FY25, owing to the expectation of robust cash flow generation backed by strong sales in the previous fiscal year and ongoing sales momentum. Consequently, the credit ratio is likely to remain healthy. However, CareEdge Ratings will continue to monitor the impact of inflationary pressure, interest rate hikes, employment trends, and other macroeconomic developments on demand, affordability, and the implications for the rated portfolio.

Over 70% of bookings for listed and large developers typically occur in the early construction phases, whereas more than 50% of bookings for small developers occur at near completion. This trend has strengthened over the years, as customers increasingly prefer reputed developers with a proven track record of timely project completion and quality construction. Such established developers have a strong track record of securing significant bookings during the construction phases, while smaller developers tend to achieve more bookings at the completion stage. This shift implies greater challenges in securing initial funding for smaller developers, thus reducing their market presence.

The Indian real estate sector is poised for robust growth, with established developers set to thrive, while smaller developers may struggle with funding and market presence.