PRESS RELEASE

December 15, 2022

Replacement rate remains comfortable at below 1 time due to calibrated pace of

launches by residential real estate developers: ICRA
Highlights:
• New launches are expected to pick up owing to healthy demand and low inventory overhang; however, developers
remain cautious
• Value of area sold is expected to grow by around 8-12% in FY2023 and 11-14% in FY2024

The Residential Real Estate sector has maintained its growth trajectory in the current year and reported the highest
H1 sales in over the last ten years in H1 FY2023. The sales in the top seven cities1 in India increased by 49% in H1
FY2023 to 259 million square feet (msf) on a YoY basis, supported by continued end-user demand and good
affordability. The developers have also maintained a judicious launch pipeline as demonstrated through the low
replacement rate (as measured by ratio of launches to sales) of less than 1 time as of September 2022 at an
aggregate level across top-seven cities. However, with maximum launches being reported in Hyderabad during H1
FY2023 (57.4 msf or 29% of the total launches in top-seven cities), the city reported a replacement rate of >1 as of
September 2022. Hence, sustenance of the sales velocity would be critical to mitigate the risk of demand-supply
mismatches. The unsold inventory level dipped to 823 msf as on September 2022 from 914 msf as on September
2021. Consequently, the Years-to-Sell (YTS) for the unsold inventory is the lowest in the last one decade at 1.5
years.
Ms. Anupama Reddy, Vice President and Co-Group Head, Corporate Ratings, ICRA, said: “ICRA expects the value
of the area sold in the sector to grow by 8-12% in FY2023 and 11-14% in FY2024. Notwithstanding the rate hikes by
the Reserve Bank of India (RBI) during the current fiscal by 225 bps, the interest rates would remain lower than the
peak interest rates witnessed in the past. ICRA expects the residential demand to remain firm, primarily supported
by the aspiration for home ownership/upgrade and healthy affordability, which is expected to keep pace with the
increase in the EMI burden. Having capitalised on the industry upcycle in the recent quarters, ICRA expects the
developers to be wary of the demand-supply dynamics in the sector and maintain a calibrated launch pipeline,
keeping the overall inventory levels under check.”
Exhibit: H1 trend in sales in top-seven cities Exhibit: H1 trend in new launches and replacement rate in top-seven cities

300 1.4
Highest H1 sales recorded in over ten years 300 1.3 1.2 1.5
250 1.0
250 0.9 0.9 0.9 1.2
259

200 0.8 0.8 0.8 0.8

221

200 0.9
207

150
189

186
185

179
177

173

150 0.6
153

100
162
84
126

151
285

280

216

182

171

149

199
109

50 100 0.3
0 50 0.0
H1FY2013

H1FY2014

H1FY2015

H1FY2016

H1FY2017

H1FY2018

H1FY2019

H1FY2020

H1FY2021

H1FY2022

H1FY2023
H1FY2013

H1FY2014

H1FY2015

H1FY2016

H1FY2017

H1FY2018

H1FY2019

H1FY2020

H1FY2021

H1FY2022

H1FY2023

New launches (msf) (LHS)

Half yearly sales (msf)
Replacement rate (times) (RHS)
Source: Propequity and ICRA Research Source: Propequity and ICRA Research

1 Source: Propequity; top seven cities: Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai Metropolitan Region (MMR), National Capital Region (NCR), Pune

www.icra.in
 On the performance of the listed entities in ICRA’s sample set 2, in H1 FY2023, the aggregate area launched stood
at 39.3 msf which is almost 72% of the total area launched by them in FY2022 and is expected to witness a two-
fold increase in FY2023 compared to FY2022, given the low inventory overhang. The average sale prices, in the top-
seven cities have also risen by almost 12% in H1 FY2023 on a YoY basis, driven by a partial pass-on of the higher
commodity prices as well as the change in product-mix with higher share of premium and luxury units.
Commenting on the leverage metrics of the sample, Ms. Reddy, said: “While affordability continues to remain
healthy, the continued significant hike in interest rates could constrain the ability of the developers to pass on the
increase in input costs to the customers in its entirety, thereby affecting their profitability. Nonetheless, the
collections are expected to remain strong and while the outflows on new launches are likely to increase, ICRA
expects the net debt/cash flow from operations to remain healthy at less than 2 times in the next two years.”
Click the below link to access our previous press releases on the sector:
ICRA revises FY2023 residential real estate outlook to Stable from Negative, supported by healthy sales traction and
declining inventory overhang
Lower impact of second wave of the pandemic on residential real estate sales; recovery likely in later part of FY2022
For further information, please contact:

Media Contacts:

Naznin Prodhani Shivendra Singh

Head Media & Communications
ICRA Ltd
Tel: + (91 124) 4545300,
Dir: + (91 124) 4545860
Email:
naznin.prodhani@icraindia.com
Deputy Manager - Media & Communications
ICRA Ltd
Tel: + (91 124) 4545300
Dir: + (91 124) 4545840
Email:
shivendra.singh@icraindia.com

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2 Listed companies in ICRA’s sample set: Ashiana Housing Limited, Brigade Enterprises Limited, DLF Limited, Godrej Properties Limited, Kolte-Patil Developers
Limited, Macrotech Developers Ltd, Mahindra Lifespaces Developers Limited, Prestige Estate Projects Limited, Puravankara Limited, Sobha Limited and
Sunteck Realty Limited

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