The performance of the residential real estate sector is expected to improve in FY22, according to a recent report by India Ratings and Research (Ind-Ra).

Grade I players are likely to see a surge in growth, while non-Grade I players are expected to see a reversal of the sharp decline experienced in FY21. The overall sales in FY22 could still be around 14% below FY20 level, the report said.

According to the report, the overall floor space sold is expected to increase by 30% year-on-year in FY22 after a 34% year-on-year decline in FY21. The recovery will likely be dominated by Grade I players, whose sales are likely to grow by 49% year-on-year in FY22, after a 14% year-on-year increase in FY21. Non-Grade I players are also likely to see their sales rise by 26% year-on-year in FY22, after a 39% year-on-year decline in FY21.

The total residential floor space sold in India remained largely stagnant at 326 million sq ft in FY20. Floor space sold declined 41% year-on-year during the nine months of FY21 and Ind-Ra expects them to be down 34% year-on-year in FY21.

Grade I players, however, saw their sales increase at a CAGR of 19.7% from FY18-FY20 as their market share expanded to 9.8% in FY20 from 6.8% in FY18. The market share expanded to 15.6% in 9MFY21 as they managed to report a 4.3% year-on-year increase in sales despite the pandemic. Non-Grade I players are generally struggling because buyers are skeptical about their ability to timely deliver projects and their access to financing remains constrained.

In some of the cities, such as Hyderabad,Gurgaon and Bengaluru, rental yields could be 3%-4% year-on-year higher in FY22. With mortgage rates falling below 7% in FY22, the gap between the rental yield and mortgage rates is narrowing and is likely to promote home ownership, the report added.