According to a recent report by ICRA, the residential real estate sector in India’s top seven cities is projected to experience robust growth, with sales expected to rise by 10 to 12% in the financial year 2024-2025. This growth is anticipated to see the area sold reach between 785 and 800 million square feet, building on a strong performance in the previous fiscal year.

Overview of Growth Projections

ICRA's report highlights a stable outlook for the residential real estate market, despite a slight moderation in the growth rate. The overall sales velocity, collection rates, and inventory levels are expected to remain encouraging. Major urban areas such as the Mumbai Metropolitan Region, National Capital Region, Bengaluru, Hyderabad, Pune, Kolkata, and Chennai are anticipated to drive this growth.

 Key Factors Driving Growth

Several factors contribute to this optimistic forecast:

1. Strong End-User Demand: There is a consistent demand for housing, particularly from end-users, which is supporting sales across these key markets.

2. Healthy Affordability: Although affordability is gradually moderating, it remains conducive to home ownership, encouraging buyers to invest in residential properties.

3. Shift Towards Luxury Units: Anupama Reddy, co-group head and vice president of corporate ratings at ICRA, noted a change in the product mix, with a higher share of luxury units being introduced to the market. This shift is providing developers with pricing flexibility, which is further supported by healthy sales and a reduction in inventory overhang.

 Inventory and Launches

The report indicates that the area available for sale is expected to increase by 12-14% annually, driven by robust demand from end-users. The total area for new launches is projected to rise by 12% year-on-year, reaching approximately 767 million square feet. This increase is occurring against a backdrop of historically low inventory levels, which have declined from 732 million square feet in March 2023 to 687 million square feet in June 2024. The years-to-sell (YTS) metric, which measures the unsold inventory relative to sales over the past year, remains low at 0.9 times, indicating a healthy sales environment.

 Financial Outlook

ICRA anticipates that cash flow from operations will increase by 9-11% during FY25, while gross debt is expected to rise by 6-7%, primarily to finance the acquisition of new properties for commercial development. The gross debt-to-cash flow ratio is projected to remain stable, hovering between 1.55 and 1.60 times.

 Rental Market Dynamics

Despite the rising rental yields in some areas post-COVID-19, which have encouraged home ownership, demand for rental housing is expected to persist in FY25. This sustained demand is attributed to a decrease in the supply of ready-to-move-in properties, leading to a continued preference for rental options.

Addressing Distressed Projects

The report also highlights the positive impact of the SWAMIH Fund, which was established to support the completion of distressed and stalled residential projects. Approximately 10-12% of these projects have received final approval, with over ₹15,000 crore raised to date from an initial corpus of ₹25,000 crore.

In summary, the residential real estate sector in India is poised for significant growth in FY25, driven by strong demand, healthy affordability, and a shift towards luxury housing. With increasing launches and a stable financial outlook, the market is well-positioned to navigate the challenges posed by rising property prices and interest rates. The overall sentiment remains positive, indicating a robust trajectory for residential real estate in the coming year.