New Delhi [India], September 15 : The sharp rise in housing prices seen over the past two years is expected to moderate, according to a sectoral analysis by Nuvama Institutional Equities. The brokerage said that the Indian real estate cycle has entered its mid-stage, where buying frenzy is easing, sales velocity is slowing, and unsold inventory is inching up.
Nuvama noted that profitability of developers improved in FY25, with industry-wide cash EBITDA margins rising to 42 per cent compared with 40 per cent in FY24. Operating profits of developers were up 16 per cent year-on-year. However, the report flagged that working capital build-up has returned, reversing the improvements seen in the early part of the upcycle.
"We believe increase in house prices shall moderate, capping margin improvement," the report stated
The study, which tracked 23 listed developers, showed wide divergence in cash generation. It said cash flows are likely to stabilise going ahead and working capital intensity shall increase driven by a pickup in construction activity, abatement of buying frenzy, and low finished inventory levels.
The report adds that equity raising emerged as the most preferred funding source for the sector in FY25.
"Despite low leverage levels, debt aversion continued with 11 of the 23 companies raising equity funds in FY25." noted the report
At the aggregate level, total cash flows of the industry rose to Rs 397 billion in FY25 from Rs 307 billion in FY24. While operating profits contributed 41 per cent of inflows, equity raising accounted for 47 per cent. Debt contribution fell sharply to just 3 per cent, reflecting developers' conservative stance on leverage.
The report also highlighted that land investments have been rising consistently. Industry-wide spend on land, approvals and annuity capex climbed from 35 per cent of collections in FY24 to 39 per cent in FY25, adding pressure on free cash flows.
On debt metrics, the sector as a whole reported declining leverage. Cumulative net debt of 15 major developers fell by about Rs 133 billion in FY25, aided by robust equity inflows and improved cash operating profits.
Looking ahead, the report noted that the industry remains on a stable footing but is unlikely to see runaway gains. With moderation in price increases and rising working capital needs, the focus of developers will shift towards balance sheet discipline, timely execution, and selective expansion.
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