India’s residential property market is moving into a different phase of its current cycle, with developers increasingly putting money to work rather than concentrating on repairing their balance sheets, Nuvama Research said in a report.The brokerage’s analysis of 21 real estate developers found that operating cash generation has held steady even as there have been concerns over slower sales volumes. Industry collections crossed Rs 1 trillion and operating cash profits expanded, but cash EBITDA margins fell to 39 per cent in FY26 from 42 per cent in FY25.Nuvama attributed the margin pressure mainly to a lower proportion of inventory being sold at the launch stage. At the same time, free cash flow generation moderated as developers stepped up spending on land and annuity assets.“The sector’s operating surplus came down from 42 per cent to 39 per cent while free cash flow deficits widened marginally,” the report said.The changes in cash flows and funding point to what Nuvama described as the middle stage of the housing cycle. Developers that had spent recent years reducing debt and releasing working capital are now in a position to deploy capital, execute projects and build assets that can generate annuity income.“While the fundamentals of the sector remain resilient, the housing cycle itself has entered the middle stage,” Nuvama said.The balance-sheet repair phase is largely over, according to the report. Developers now have stronger balance sheets, lower leverage and significant liquidity, helped by equity fund raising.This has also altered the role of debt in the sector. Borrowings have once again become an important source of growth capital, while equity funding has taken a back seat.Nuvama, however, said the renewed use of debt should not necessarily be viewed negatively because the purpose of borrowing has changed from earlier cycles.“In previous cycles, debt was largely used to build land banks. Current borrowings are being directed towards creating annuity assets with strong cash flow generation potential,” the report said.Leverage is still well below levels recorded in previous cycles, while working capital management has improved significantly and interest burdens remain lower than historical levels.The shift means developers are moving beyond the benefits that came from simply cutting debt and releasing working capital.“The easy gains from deleveraging and working capital release are largely behind us. The focus has now shifted towards execution, capital allocation and return on incremental investment,” the report said.
Spending priorities change
The next phase is expected to involve greater deployment towards land acquisition and annuity-generating assets. Nuvama expects cash EBITDA margins to stabilise going ahead, even as developers continue to spend on these areas.Free cash flow has already moderated alongside the higher spending on land and annuity assets, while the brokerage expects capital expenditure in these areas to continue.At the same time, Nuvama expects sales momentum and launch absorption to remain steady. Operating margins are likely to stay stable to slightly lower.The report said the combination of stronger balance sheets, lower leverage, improved working capital management and lower interest burdens indicates that developers are more confident about the sustainability of the current housing cycle and are preparing for the next phase of growth.That expansion, Nuvama expects, will increasingly be funded through internal cash generation and debt. As a result, developers are likely to have limited need for large-scale equity dilution.
