Forecasts Indicate Housing Market Price Growth Amidst Strong Sales

The Indian residential real estate market is witnessing a notable uptrend, with ICRA, a prominent rating agency, forecasting a significant 5-6% increase in average sale prices for the current fiscal year. This optimistic projection underscores a period of transformation for the housing sector, driven by strategic shifts in developer focus and sustained buyer interest. As real estate dynamics evolve, the sector's outlook remains positive, bolstered by strong sales performance and an emphasis on luxury properties.

Projected Growth in Sales Area

ICRA’s analysis reveals a promising outlook for the housing market in India’s top seven cities. The agency estimates that the total area sold in these urban centers will range between 785 and 800 million square feet during the 2024-25 fiscal year. This projection represents a substantial 10-12% increase compared to previous periods, reflecting robust market activity and a growing appetite for residential space.

The seven key cities in focus—Mumbai Metropolitan Region (MMR), Delhi-NCR, Bengaluru, Hyderabad, Pune, Kolkata, and Chennai—are poised to drive this growth. Each city, with its unique market characteristics and demand drivers, contributes to the overall expansion. For instance, Mumbai’s premium residential segment and Delhi-NCR’s suburban developments are expected to play crucial roles in achieving these targets.

Factors Driving Price Increases

The anticipated 5-6% rise in average sale prices is largely attributed to a strategic shift towards luxury home launches by real estate developers. As developers increasingly focus on high-end properties, which command premium prices, this trend is expected to exert upward pressure on average sale prices across the market.

ICRA’s report highlights that luxury homes, which typically feature advanced amenities and prime locations, are becoming a significant portion of new launches. This shift is not only transforming the product mix but also enhancing the pricing flexibility within the market. As a result, the residential sector is experiencing a recalibration of price points, reflecting both the evolving buyer preferences and the high value associated with premium properties.

Sales Velocity and Market Stability

The agency’s analysis suggests that these metrics will continue to support a stable and healthy market environment.

In particular, ICRA expects the launch of new residential projects to increase by 12% year-on-year (YoY), reaching approximately 767 million square feet during the current fiscal year. This surge in new project launches reflects a positive sentiment among developers and a proactive approach to meeting growing demand.

Anupama Reddy, Co-Group Head & Vice President – Corporate Ratings at ICRA, noted that the residential real estate sector has demonstrated remarkable resilience and growth. For the 2023-24 fiscal year, the sector recorded a substantial 19% YoY increase in sales. This robust performance underscores the sector's capacity to adapt and thrive, even amid evolving market conditions.

Quarterly Performance and Future Expectations

The first quarter of the current fiscal year saw a moderate 7% YoY increase in the area sold across the top seven cities. This growth was somewhat subdued due to the deferral of new project launches, which are expected to be rescheduled to subsequent quarters. Nevertheless, ICRA maintains an optimistic outlook, anticipating double-digit growth in residential sales for the remainder of the fiscal year.

Reddy emphasized that despite a slow start, strong end-user demand and healthy affordability levels are expected to drive significant sales growth. The residential real estate sector's positive outlook is supported by a favourable product mix and pricing flexibility, which are essential for maintaining market stability and attracting buyers.

Impact of Luxury Homes on Market Dynamics

The focus on luxury homes is a key driver of the projected increase in average sale prices. The growing proportion of high-end units in the market is contributing to higher price points and influencing overall pricing trends. This shift aligns with broader consumer preferences for premium living spaces and underscores the evolving landscape of the residential real estate sector.

ICRA’s report indicates that the average sale price of residential properties increased by 11% in FY2024 compared to the previous year. This trend is expected to continue, with a further 5-6% rise projected for FY2025. The continued growth in average sale prices reflects the sector’s ability to adapt to changing market conditions and leverage the demand for luxury properties.

The residential real estate market in India is on a promising trajectory, with projected increases in both sales area and average sale prices. The sector’s resilience and adaptability are evident in its strong performance and positive outlook. As developers continue to focus on luxury home launches and navigate evolving market dynamics, the Indian housing market is set to experience continued growth and stability.

ICRA’s forecast highlights a vibrant and evolving market, characterized by robust sales, strategic shifts towards high-end properties, and a positive outlook for the future. The Indian residential real estate sector is well-positioned to capitalize on these trends, ensuring a promising year ahead for both buyers and developers.