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According to a recent study, CareEdge Ratings expects the pre-bookings and collections for the listed real estate players to exceed Rs1,30,000 crore and Rs80,000 crore in FY25, respectively, with robust growth of 15-20% over FY24 levels. The credit profiles of established players are expected to remain stable supported by comfortable cash flow position.
The combination of strong collections and an asset-light growth model will likely maintain robust balance sheets of leading listed companies with the aggregate debt-to-collection ratio expected to remain below 0.70 times.
CareEdge Ratings anticipates the housing demand to remain resilient over next two years, accompanied by growth in launches and sales of 10-15%. Characterised by robust sales momentum, reduced inventory overhang, an increasing preference for premium units, rising land prices and higher input costs, an increase in property prices seemed inevitable.
In CY23, prices rose approximately 8% nationwide, with Hyderabad, Bengaluru, and Gurgaon experiencing the highest growth rates. Notably, 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 7-10% in CY24, primarily driven by the end-user market.
Following an upswing in housing market since FY22, the sector has continued to maintain higher credit ratio (implies number of upgrades to downgrades). Although there was a slight decline in credit ratio in past two fiscals, it still stands high at over two times. The credit ratio continues to remain robust despite recessionary fears and tighter monetary policies, indicating resilient financial performance.
Notably, prior to pandemic, the industry consistently witnessed 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, on account of 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. Although, CareEdge Ratings will continue to monitor the impact of inflationary pressure, interest rate hikes, employment trends and other macroeconomic developments on demand and affordability and the implications for the rated portfolio.
Due to an increasing preference for reputed and established players, major residential real estate companies have shown strong performance. In FY24, these companies achieved aggregate pre-sales exceeding Rs 1 trillion, marking a significant year on year (YoY) growth of 36% over 47% growth in FY23. Their robust operational performance resulted in increased collections, which doubled from Rs 30,000 crore at the end of FY19 to over Rs 67,000 crore by FY24. Developers effectively utilised these collections to manage their debt, reducing gross indebtedness from nearly Rs 50,000 crore in FY19 to approximately Rs 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.
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.
Following the implementation of RERA and the NBFC crisis, many weaker/small players faced significant challenges in securing funding and completing projects on time, which ultimately led to their marginalisation. 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.
