India's Housing Market: Stable Growth and Rising Prices Expected in FY26

Residential property sales in India are expected to see a marginally lower growth rate of 10-12% in FY26 compared to 12-14% in FY25, according to Crisil Ratings. Average prices are anticipated to rise by 4-6% over the medium term, following the double-digit growth seen in the previous two financial years.

In the three financial years leading up to FY25, housing sales registered a compound annual growth rate (CAGR) of around 26%, with housing demand growing at a CAGR of around 14% and the remaining growth attributed to increased realizations. “Residential real estate developers will experience stable sales growth this financial year and the next, as demand stabilizes after three years of post-pandemic recovery. Demand or volume (sales booking in million sq ft) is expected to rise by 5-7% and average prices by 4-6%,” Crisil Ratings stated.

In FY25, demand was flat due to elevated capital values and delays in launches in some cities, caused by state elections and changes in property registration rules. This financial year and the next, demand growth is expected to rebound, driven by improved affordability from lower interest rates and the normalization of price growth. Sustained demand for premium and luxury houses and smoother launches across key micro markets will further support this growth, as the previous issues causing delays in launches are expected to subside.

With supply expected to continue exceeding demand, inventory levels are likely to inch up in the coming financial years. However, strong collections and deleveraged balance sheets of developers will maintain their credit profiles in a healthy state. “Premium and luxury segments in the top seven cities have witnessed a significant surge, with their share of launches increasing from 9% in 2020 to 37% in 2024,” said Gautam Shahi, Director at Crisil Ratings. This trend is attributed to rising incomes and urbanization, which have fueled the desire for larger, more luxurious living spaces. The premium and luxury segments are expected to account for 38-40% of total launches in 2025 and 2026, with average prices growing at a steady rate of 4-6% over the medium term.

In contrast, the affordable and mid-segments are likely to account for a relatively low share of launches—10-12% and 19-20%, respectively—in calendar years 2025 and 2026. This represents a significant decline from their respective shares of 30% and 40% in 2020, as rising land and raw material costs have rendered these segments less viable for developers.

Anticipating robust demand growth, developers have ramped up launches over the past three financial years, resulting in overall supply outpacing demand during this period. As supply is likely to continue outpacing demand in the coming financial years, inventory is expected to inch up to 2.9-3.1 years from 2.7-2.9 years in the previous two financial years.

Robust collections, driven by strong sales and timely project execution, along with the increasing adoption of asset-light models such as joint ventures and joint development of projects, have helped developers significantly deleverage their balance sheets. This trend has been further bolstered by substantial equity inflows, as reflected in the notable increase in qualified institutional placement (QIP) volume for a sample set of developers. The QIP proceeds as a percentage of outstanding debt jumped to 24% last financial year, up from 13-16% in the preceding three financial years.

The significant increase in QIP proceeds and the continuing improvement in cash flow from operations (CFO), which is the operating surplus generated from collections after accounting for construction, operating, and committed land costs, has contributed to strong credit metrics for developers. This, along with deleveraged balance sheets, is expected to improve their debt-to-CFO ratio slightly to 1.1-1.3 times in this fiscal and the next, from 1.2-1.5 times over the past two fiscals. For context, this ratio was as high as around 5.6 times in FY20. However, the ability of developers to maintain low-to-moderate leverage and prudence in controlling inventory at reasonable levels will remain a key monitorable factor.