Brighter days ahead for grade 1 real estate players: Ind-Ra

Apart from a lower ratio of house price to salary, a lower interest rate environment is likely to improve the affordability of house ownership as mortgage rates decline. 

Mumbai: India Ratings and Research (Ind-Ra) said that performance of residential real estate sector is expected to improve in FY22 from a weak base currently. Grade I players are likely to see a surge in growth from a moderately strong base while non-grade I players are likely to see a reversal of sharp decline experienced in FY21.

Ind-Ra emphasised that overall sales in FY22 can still be around 14 per cent below FY20 level. It expects residential real estate sector to stage a sharp K-shaped recovery in FY22.

The overall floor space sold is likely to increase by 30 per cent year-on-year in FY22 after a 34 per cent decline in FY21. The recovery will likely be dominated by grade I players whose sales are likely to grow by 49 per cent in FY22 after a 14 per cent increase in FY21.

Non-grade I players are also likely to see their sales rise by 26 per cent in FY22 after a 39 per cent decline in FY21. Affordability as measured by the ratio of house price index and salary index has steadily improved since FY15 as the average increase in salaries well-exceeded the average increase in house prices. Ind-Ra expects the improved affordability to help spur residential real estate demand.

In some cities like Hyderabad and Bengaluru, rental yields can be 3 to 4 per cent higher in FY22. With mortgage rates falling below 7 per cent in FY22, the gap between rental yield and mortgage rates is narrowing and is likely to promote home ownership.

Apart from a lower ratio of house price to salary, a lower interest rate environment is likely to improve the affordability of house ownership as mortgage rates decline.