Housing demand to reach pre-Covid levels only after FY23: Crisil – The Financial Express

Clipped from: https://www.financialexpress.com/industry/housing-demand-to-reach-pre-covid-levels-only-after-fy23-crisil/2260284/

“However, absolute demand will catch up with pre-pandemic levels only after fiscal 2023. The demand in the first half of this fiscal (FY22) will be impacted by the second wave of the pandemic. Nevertheless, a healthy recovery is expected in the second half, much like the previous fiscal,” it projected.

It expects established developers with well-managed balance sheets to grow faster than the industry, consolidate their presence, and sustain their credit profiles. On the other hand, capital values have bottomed out and are likely to stabilise with a slightly upward bias this fiscal because of rising raw material and construction labour costs.

Crisil on Tuesday said the recovery in the residential real estate to pre-Covid levels of 180-185 million sq ft (MSF) is expected only after FY23. However, the credit rating agency noted that on an annual basis housing demand is expected to grow 5-10% year-on-year (y-o-y) in the current fiscal.

Improved affordability and work from home will increase demand for houses by an average of 5-10% (in terms of area) y-o-y in India’s top six cities in FY22. But two of these — Mumbai and Pune — could see demand contracting because of a higher base of last fiscal, while the rest should see a rebound on a low base, Crisil said in a report.

Crisil’s minimum annual household threshold income index shows that affordability has improved by up to 30% in six cities in the last five years due to low-interest rates, moderate price correction and reduction in stamp duty (especially in Maharashtra in FY21).

“However, absolute demand will catch up with pre-pandemic levels only after fiscal 2023. The demand in the first half of this fiscal (FY22) will be impacted by the second wave of the pandemic. Nevertheless, a healthy recovery is expected in the second half, much like the previous fiscal,” it projected.

It expects established developers with well-managed balance sheets to grow faster than the industry, consolidate their presence, and sustain their credit profiles. On the other hand, capital values have bottomed out and are likely to stabilise with a slightly upward bias this fiscal because of rising raw material and construction labour costs.

“Demand in Bangalore, Hyderabad, NCR and Kolkata is set to rise 40-45% this fiscal after plunging 25-45% last fiscal, propelled by better affordability and lower base. In contrast, Mumbai Metropolitan Region and Pune will likely see a contraction of 10-20% this fiscal, after a 5-15% growth last fiscal, with end-users concluding transactions to benefit from lower stamp duty,” said Isha Chaudhary, director, Crisil Research.

Covid-19 amplified the divergence in the performance of financially prudent and leveraged developers. Established ones with a strong track record of timely delivery increased their market share to 25% the last fiscal from 21% in FY20 as they recovered faster in the second half and maintained, or even exceeded, pre-pandemic sales, Crisil pointed out.

Crisil Ratings director, Anand Kulkarni explained that established, prudent developers have well-managed balance sheets, reflected in comfortable debt-to-total assets ratio of below 30%, and are also well placed in terms of liquidity. “They had raised around Rs 44,000 crore via equity, and land and commercial assets monetisation between fiscals 2016-2021. The improved financials will come in handy to tackle stress from the second wave, meet growth needs and keep their credit profiles stable,” Kulkarni added.

However, leveraged developers dependent on debt as the primary source of capital will continue to struggle, crippled by high debt-to-total assets ratio of above 60%, weak liquidity and limited ability to raise equity and monetise commercial assets. These players may tie-up with established players by way of joint ventures, joint development agreements, or development management models to benefit from the latter’s financial flexibility and brand.

Crisil expects a slowdown in new launches in FY22, and developers to focus on the sale of ready or near-complete properties, leading to a gradual reduction in inventory.

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