Despite an increase in property prices as wells as the interest rates on loans, demand for housing is expected to stay firm, a domestic rating agency said on Tuesday.

The housing demand in the top six cities is expected to grow by 5-10 per cent, the report by Crisil Ratings said, adding that the increase will be visible despite a high base.

The agency estimated that housing demand rose by 33-38 per cent in FY22, surpassing pre-Covid-19 levels. The high growth was recorded on a low base of FY21, when demand had fallen by up to one-fourth, it said.

Affordability had started declining from the second half of FY22, after improving up to 20 per cent between fiscals 2016 and 2021 and the second half of FY22, it said.

According to the report, higher capital values, interest rates, reinstatement of stamp duty and the high-base

effect were major headwinds for the sector.

“We expect residential real estate prices to rise 6-10 per cent across the top six cities this fiscal due to a steep rise in material costs and relatively favourable demand-supply dynamics, especially for established developers,” said Aniket Dani, director, Crisil Ratings.

Inventory levels in majority of the top six cities are at a comfortable 2-4 years as against 3-5.5 years before the COVID-19 pandemic, it said, adding that the correction happened because of fewer launches in the past two years owing to the pandemic, and slower sales momentum.

Large realtors have continued to gain market share, cornering 24-25 per cent of the market by March 2022, compared with the pre-pandemic level of 18 per cent.

“Established developers now have stronger balance sheets, reflected in a comfortable debt-to-total assets ratio of 25 per cent last fiscal versus more than 40 per cent at the start of the pandemic,” said Kshitij Jain, associate director, Crisil Ratings.

Bigger developers have raised Rs 13,000 crore through equity infusions and monetisation of lands, which makes them comfortably placed in terms of liquidity.

The agency said over the medium term, any aggressive debt-funded growth in the industry will bear watching.