Residential Real Estate FY26: Sales to Moderate, Likely Inventory Surplus in Luxury Segment

Mumbai, January 28, 2025: India Ratings and Research (Ind-Ra) has maintained a neutral outlook for the residential real estate sector for FY26. Growth in bookings is likely to reduce significantly due to the high base, high prices and a likely slowdown in the luxury segment. The residential real estate market is expected to register a strong performance in FY25, where the sales growth will be around 17 per cent YoY in terms of area sold (square feet of area sold) and around 15 per cent in terms of units sold for the top eight real estate clusters. This growth will be largely driven by the premium and luxury segment sales.

“FY26 is likely to see continued positive growth in bookings, although at a slower pace due to the base effect and moderation in affordability. Among the top eight cities, the National Capital Region, Bengaluru, and the Mumbai Metropolitan Region are likely to remain relatively resilient in bookings, except for the luxury segment. Developers may continue to experience positive growth in collections and operating cash flows, leading to a sustained strong balance sheet. This is enabled by sector consolidation and delayed launches amid limited unsold stock,” says Mahaveer Shankarlal Jain, Director, Corporate Ratings, Ind-Ra.

Trends FY 2026

Housing Price Rise Expected to Taper: Ind-Ra expects property prices to increase 5 per cent-6 per cent YoY by end-FY25, then moderate to 3 per cent-4 per cent YoY for FY26, due to base effects and new launches. Prices surged 21 per cent YoY in FY24 with old stock cleared and existing inventory largely liquidated.

Demand Resilient in Mid-Income, Upper Mid-Income & Premium Segments: Ind-Ra expects the mid-income and upper mid-income segments, leading in 1HFY25 (28 per cent and 30 per cent of home sales), to maintain a moderate buyer interest. Growth may moderate in FY26, but these segments will continue to see traction. The premium and luxury segments saw sharp demand growth during FY23 to 1HFY25, which may cool down in FY26 due to a high base and increased inventory.

Tier II and III Cities to Report Significant Growth: The government’s focus on infrastructure and connectivity is likely to boost demand in Tier II and III cities. New markets namely Thiruvananthapuram, Guwahati, Bhubaneshwar, and Ranchi are growing rapidly. Outer Mumbai Metropolitan Region (MMR), Surat, Vadodara, Jaipur, Nashik, Chandigarh, and Bhopal, which form over 60 per cent of the market, grew at a 10 per cent CAGR during 2021-2024.

Affordability Levels Continue to Dip in FY25: Elevated interest rates and property prices in FY24 and 1HFY25 challenged affordability, reducing demand in the affordable segment. With price growth expected to moderate in FY26, affordability levels may marginally improve, increasing demand in the affordable segment.

Sector Consolidation to Moderate: Tier I players gained market share from FY21 to FY23. However, FY24 and 1HFY25 saw improved performance from other players as affordability dipped. While Tier I players are expected to continue leading in sales, market consolidation may moderate through FY26.

Continued Moderation in Sales could Result in Inventory Risks: Ind-Ra expects inventory levels to rise steadily due to ongoing investments and new launches, with the launch/sales ratio remaining 1.12x-1.15x, higher than pre-pandemic levels. This could be challenging if demand growth remains moderate for consecutive years, particularly affecting high-value inventories in the premium and luxury segments.