Established residential realtors¹ sold ~Rs 34,000 crore of inventory in the first nine months of this fiscal — equal to sales in the whole of last fiscal — reflecting a significant recovery in the housing market. Improved affordability and preference for larger homes owing to a surge in remote working driven by the Covid-19 pandemic have fuelled this boom.

As a result, the market share of these 11 listed players in India’s six cities² has risen to 20-22% currently from 14-16% before Covid-19 struck.

Besides strong residential sales, equity raising, and asset and land monetisation have helped these players navigate the pandemic and strengthen credit profiles.

Says Anand Kulkarni, Director, Crisil Ratings, “Increased affordability due to low interest rates and flattish capital values, rising demand for bigger homes, and government measures in the past two fiscals have provided a fillip to residential realty. After the setback in the first half of last fiscal due to the first wave, the sector has grown steadily through the second and third waves. Hence, established residential realtors are likely to see 30-35% growth this fiscal versus 14% last fiscal. For the next fiscal, we see growth at 10-15%.”

To be sure, the sector has seen lower impact and a shorter disruption period with each passing wave — with sales at 70-75% of the pre-pandemic level during the second wave compared with 50-55% during the first and recovery at one quarter as against two quarters during the preceding one — underlining the sector’s resilience.

Meanwhile, selling prices of houses in the six cities are expected to increase marginally in the near future as realtors pass on the impact of higher labour and material costs, and as the demand-supply dynamics improves. The inventory level in these cities has declined to ~2.5 years³, compared with over 3.5 years as of March-2019. The ability of realtors to command price hikes will vary though, depending on brand strength and the resultant demand pull.

That said, the pandemic has amplified the difference in the performance of established and financially prudent developers versus their leveraged counterparts. Despite a downcycle in the past few fiscals, established realtors have delivered projects on time. They have also deleveraged in the five fiscals through 2022 by raising equity and monetising commercial assets and land worth ~Rs 50,000 crore.

Says Kshitij Jain, Associate Director, Crisil Ratings, “The established realtors have strengthened their credit profiles. The debt to total assets ratio of these realtors is expected to improve to ~25% by March 2022 from ~45% five years ago. Significant opportunities through joint ventures and joint development will help these realtors log healthy growth without compromising on their credit risk profiles.”

Some mid-sized developers, which have historically maintained low leverage, are also well-placed in the current scenario. However, leveraged developers will continue to lose market share as they are crippled by high debt to total assets ratio of above 50%, weak liquidity, and limited ability to raise equity or monetise commercial assets. However, these realtors may choose to enter into partnerships with their established counterparts for project development.

The ability of real estate developers to maintain a lean capital structure to tackle future downcycles will remain important, and any aggressive debt-funded growth will bear watching.

¹ The top 11 listed realtors assessed are Brigade Enterprises Ltd, DLF Ltd, Godrej Properties Ltd, Kolte-Patil Developers Ltd, Macrotech Developers Ltd, Mahindra Lifespace Developers Ltd, Oberoi Realty Ltd, Prestige Estates Projects Ltd, Puravankara Ltd, Sobha Ltd, and Sunteck Realty Ltd
² Mumbai Metropolitan region, National Capital Region, Bengaluru, Pune, Hyderabad & Kolkata
³ The inventory is calculated as years required to sell the current unsold inventory at last year run rate