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The real estate sector in the National Capital Region (NCR) has witnessed a remarkable surge, recording a 46% year-on-year growth in the sales area during the fiscal year 2023, as per the latest report by Rating Agency ICRA. This upswing is highlighted by a near doubling of total launches, reaching an impressive 64 million square feet.
A key factor in this growth has been the reduction in the replacement ratio, which stood at 0.9 times in FY2023 and further declined to 0.5 times in the first half of FY2024. This decrease is attributed to carefully calibrated launches, alongside sustained robust sales. The "years to sell" (YTS) metric in the NCR region, a crucial indicator of market health, has compressed significantly to just 0.7 years, propelled by a combination of strong sales velocity, strategic launches, and low inventory levels. ICRA projects that the YTS will likely remain under one year as of March 2024, signaling a stable outlook for the residential real estate market.
As of September 2023, the YTS in NCR experienced a dramatic decrease from 2.6 years in September 2020 to just 0.7 years. Anupama Reddy, Vice President and Co-Group Head at Corporate Ratings, ICRA, anticipates a modest 1-2% increase in the area sold in NCR for FY2024. This projection is based on the substantial base established in FY2023, supported by end-user demand and healthy affordability levels. NCR's contribution to the total area sold annually in the top seven cities is expected to remain consistent at 10-14% through FY2024 and FY2025.
A significant reduction in unsold inventory has been observed, plummeting from 113 million square feet (msf) in September 2021 to 57 msf in September 2023. This decrease is primarily due to the continuation of strong sales. Within the NCR, Gurugram has emerged as the most preferred market, accounting for over half of the total area sold and new launches. It's followed by Greater Noida and Noida, contributing 18% and 17%, respectively, in FY2023. In contrast, the Faridabad and Delhi markets have seen minimal launches in the past 18 months.
The average selling price in the NCR has escalated by approximately 42% in FY2023, a rate unmatched by any of the top seven cities. This rise is backed by an increased focus on luxury sales, robust demand, low inventory levels, and a comfortable YTS.
Reddy further comments on the evolving preferences of home buyers, noting a significant tilt towards the luxury segment, with properties priced above Rs 2.0 crore. This segment's share in overall sales jumped to 56% in Q2 FY2024 from 31% in Q2 FY2021. Meanwhile, the mid-income and affordable segments saw a reduction in their market share.
Looking ahead, ICRA forecasts a healthy continuation in sales velocity and collections. Sales are expected to grow by 15-17% in FY2024 and approximately 11-12% in FY2025. Collections are likely to increase by 19-21% in both FY2024 and FY2025, buoyed by a rise in unit sales, increased average selling prices, and enhanced project execution. This growth trajectory is anticipated to bolster cash flow from operations.
Despite expectations of a 17-19% increase in gross debt levels in FY2024, leverage, as indicated by the gross debt/CFO ratio, is projected to remain comfortably between 1.70-1.75 times in FY2024 and 1.55-1.60 times in FY2025. This stability is underpinned by healthy cash flows. Overall, ICRA maintains a Stable outlook on the residential real estate sector in the NCR.
The NCR real estate market is experiencing a robust phase of growth and stability, driven by strategic launches and sustained demand. With a balanced approach towards luxury and affordability, the sector is poised for continued success in the coming years, reflecting the evolving preferences and financial capabilities of home buyers in the region.
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