The residential real estate sector has entered a phase of calibrated growth following a strong post-pandemic expansion. Between fiscal 2022 and fiscal 2025, the industry recorded a compound annual growth rate (CAGR) of 26% in sales (value).
Despite the moderation, steady operating performance, supported by healthy collections, has enabled developers to maintain controlled debt levels, thereby strengthening their credit profiles, according to a report by CRISIL Ratings.
FY26 growth moderates amid demand stagnation
In fiscal 2026, sales (value) growth is estimated to have moderated to 5–7%. This was primarily due to stagnant demand (volume), driven by elevated capital values and delayed project launches stemming from approval-related challenges in certain cities.
FY27 outlook: growth to ease further
Looking ahead to fiscal 2027, sales (value) growth is expected to soften further to 4–6%, as both average selling prices and demand growth flatten.
The growth in average selling prices is projected to moderate to 3–5% in fiscal 2027. This follows a high-growth phase, which saw an 11% CAGR between fiscal 2022 and fiscal 2025, and a steady 7–9% increase estimated for fiscal 2026, creating a higher base effect.
Demand outlook and inventory build-up
CRISIL Ratings director Gautam Shahi says: “The sustained increase in housing prices is expected to result in flattish demand growth of 0–2% in fiscal 2027. This is despite expectations that approval-related challenges will ease in Pune and the Mumbai Metropolitan Region. Meanwhile, the resolution of Bengaluru’s approval-related issues bears watching.
With supply continuing to exceed demand, inventory levels are expected to inch up to 3.2–3.4 years in fiscal 2027, compared with less than three years in the preceding two fiscals.
Premium and luxury segment drives demand
Demand continues to be supported by the premium and luxury housing segment, which is expected to account for 38–40% of total launches in fiscal 2027, up significantly from 12% in fiscal 2022.
This shift reflects evolving homebuyer preferences for larger homes with enhanced amenities. For developers, the segment remains attractive due to higher realisations and stronger gross margins, which support both sales and collections.
Healthy cash flows support financial stability
Despite moderating sales growth, the sector’s operating performance remains robust, underpinned by steady collections. Collections have largely aligned with construction progress, driven by timely project execution, resulting in strong cash flow generation.
This has reduced developers’ reliance on external debt for project funding. In fiscal 2027, cash flow from operations (CFO) is expected to grow 15–17%, supported by collections growth of 22–24%.
Key risks to watch
Two key factors will require close monitoring going forward. One is the lower-than-expected demand coupled with aggressive project launches, which could lead to inventory build-up. Second is the ongoing global geopolitical uncertainties that may fuel inflationary pressures and impact housing demand.