According to a Financial Express report, the total inventory with builders in the Mumbai Metropolitan Region (MMR) could be nudging Rs 2.5 lakh crore with an additional 100,000 apartments remaining unsold over the past year. Industry watchers say given the average price of these flats of about Rs 90-95 lakh, there are not too many takers at this point.
Moreover, there’s anticipation prices will come off, they add, following the roll-out of RERA or the Real Estate (Regulation and Development) Act. As such the total number of apartments unsold right now has crossed 2.5 lakh. “At the current pace, it could take nearly five years to clear the unsold stock,” says Pankaj Kapoor, MD, Liases Foras, speaking to the Financial Express.
However, sources tell IndiaScribes.com that the actual figures could be much higher and could be close to Rs 3 lakh crore.
Kapoor points out to Financial Express, that the poor velocity of sales is the consequence of high property prices partly driven up by an increase in input costs. Indeed, while the homes are not really large — between 500 square feet and 1,000 square feet — the weighted average price per square foot is as much as Rs 13,000, data sourced from Liases Foras show.
However, even as the inventory of ready-to-occupy properties has risen threefold to 15,000 units in the past two years, sales have picked up pace. Sales of ready apartments have almost doubled to more than 10,000 units in 2016-17 over the previous year, a sharper rise than in 2015-16. One reason for this was developers’ urgency to complete and sell properties before the roll-out of RERA.
According to a Zee Business report, nation wide India’s property is slowly recovering as unsold inventory levels dropped 17% from its peak of 2014, Knight Frank India said. Unsold inventory, however, currently stands at 5,96,044 units.
Industry sources told IndiaScribes.com that the unsold inventory country wide could be as high as 8 lakh units.
Knight Frank said that new launches fell 41% — lowest in seven years while sales were at its 5 year lows, down 11% in the first half of the current year. Affordable housing, however, is seeing great interest backed by Prime Minister Narendra Modi as 71% launches in the given period were in the price category of less than Rs 50 lakh as against 52% of last year.
With RERA now a reality, however, there is the possibility of both sales and launches losing momentum. Ashish Shah, COO, Radius Developers, says developers are re-calibrating their models to comply with the new rules and therefore the number of launches could be fewer. “Companies must engage with their stakeholders and financiers to figure out their capital flows,” Shah said adding that they might need credit lines for longer periods.
Already, the acute shortage of cash following demonetization in early November last year slowed down new launches significantly which have seen a steady quarter–on–quarter (Q-o-Q) decline for the last four quarters. In fact, a Cushman and Wakefield study shows the top eight cities reported a 16% year-on-year fall in launches with approximately 25,800 units launched in the January-March period. Since May, project launches have declined by 8%, the report noted.
Anshul Jain, managing director, India, Cushman and Wakefield, said launches in the residential sector were expected to remain subdued over the next two to three quarters. “Developers need to make intrinsic changes to their business structure, operations and marketing strategies to comply with RERA norms,” Jain explained. Once builders come up to speed with the compliance, sales could pick up say experts who point out buyers would become more confident of getting possession on time.
“Unlike in recent months, we could see buyers opt for under-construction apartments since these are typically priced more attractively,” said a builder. In the past delays in the completion of projects have made buyers wary of buying incomplete apartments and pushed them into buying ready-to-move-in houses. “Apart from the lower risk GST will now be applicable on ready-to-move-in homes and that will stimulate demand” Kapoor explained.
According to a Hindu Business Line report dated Jan 3 this year, builders across India are sitting on unsold inventory of 46 months, forcing them to slow down new launches.
This inventory was built up over the past few years, but with demonetization additionally impacting the real estate market, builders may have to wait for a couple of quarters before launching any new projects.
“An inventory of 8-11 months is typically considered efficient and sustainable. This implies that sales must improve over four times for the current inventory to clear,” Pankaj Kapoor, Managing Director at real estate consultancy Liases Foras, told BusinessLine. For the Mumbai Metropolitan Region (MMR), the unsold inventory at the end of September 2016 was 55 months, while it was 58 months for the National Capital Region. The maximum increase was seen in Chennai, where the inventory lag reached 45 months from 30 months a year ago . “New launches in Bengaluru have dipped by one-third compared with the last quarter. This shows developers are focussing more on offloading existing inventory. The market is preparing itself for a long gestation,” Kapoor added.
Ramesh Nair, COO (Business) and International Director, JLL India, said that in 2016, only the first quarter saw a high number of launches, followed by a slowdown in successive quarters. In the September quarter, the number of apartments sold pan-India exceeded new launches by more than 10,000 units.
“Markets are maturing, and developers are trying to reduce inventory levels across cities by decreasing the number of launches,” Nair said.
“It is a positive sign. Developers are focussing on completing existing projects and improving the pace of construction, rather than launching new projects,” said AS Sivaramakrishnan, Head–Residential Services, India, CBRE South Asia.
Despite the inventory pile-up, prices haven’t softened. “Margins for developers are shrinking; there is no room for prices to come down, especially in the ₹3,500-8,000-per-sqft segment. If developers are giving discounts or offering schemes, it will continue. But beyond that, it is unrealistic to expect any price cuts,” he added.
Irfan Razack, Chairman and Managing Director, Prestige Group, and Chairman of CREDAI, the apex body of private real estate developers, said project prices are always cost-plus and developers work with thin margins. “Any expectation of price reduction is not viable. Only certain micro-markets, where prices have reached abnormal levels with high margins, and where developers are keen to sell their inventory, may see a price drop. Specifically, the mid-to-low income housing will see no change in pricing, and inventory levels will definitely decrease over time.”
Another factor delaying new launches is the introduction of the Real Estate Regulation Bill.
“Every developer has to be in compliance with the conditions mentioned, which deters them from launching projects in a hurry,” Razack said.
“With all this, the pipeline of launches will definitely slow down, and perhaps for a while, there won’t be new projects available in the market,” he added.
Credits: Hindu Business Line, Zee Business, Hindustan Times, agencies