Large residential developers see surge in sales, corner bigger chunk of pie

Established residential property developers have recorded strong growth in the first nine months of this fiscal year, matching revenue for FY21 as a whole, and now account for over a fifth of total business in key cities, a tad higher than their share in the pre-pandemic world.

The top 11 listed residential developers have sold inventory worth Rs 34,000 crore in the first nine months of this fiscal year, 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 fuelled this boom, according to CRISIL.

As a result, the market share of these 11 listed companies in India’s six cities has risen to 20-22% from 14-16% before Covid-19 struck, the ratings firm said.

The publicly listed real estate developers include DLF, Godrej Properties, Lodha Group flagship Macrotech Developers and Prestige Estates.

What’s more, the strong residential sales have been complemented with equity raising as well as asset and land monetisation, helping them navigate the pandemic and strengthen credit profiles.

“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%,” according to Anand Kulkarni, Director, CRISIL Ratings.

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 key cities are expected to increase marginally in the near future as developers 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 around 2.5 years from more than 3.5 years as of March 2019. The ability of the developers to increase prices will vary though, depending on brand strength and the resultant demand pull, CRISIL said.

Winners and losers

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 fiscal years, established developers have delivered projects on time. They have also deleveraged in the five fiscal years through 2022 by raising equity capital and monetising commercial assets and land worth around Rs 50,000 crore, CRISIL said.

Some mid-sized developers, which have historically maintained low leverage, are also well-placed in the current scenario. 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 developers may choose to enter into partnerships with their established counterparts for project development.