Agony of Unsold Inventories

Agony of Unsold Inventories
Mar 2017 , by , in Story

Delhi National capital Region

While Mumbai has unsold inventory of approximately 27.5%, Bengaluru – 25%, Chennai – 22.5%, Ahmedabad – 20%, Pune – 19.5% and Hyderabad – 18%, the maximum unsold stock is lying in the Delhi NCR region, approximately 35%. The unsold inventory is highest in Noida, while the remaining unsold inventory is in Delhi, Ghaziabad and Faridabad.

The rising pile of unsold residential and commercial properties in different cities with the maximum in the North India has been dragging down the allied sectors like financial services and building materials as well. The submissive construction activity has had a negative impact on the labour market too which engages almost 10 to 12 million workers.

As per ASSOCHAM, “In spite of a fall in prices and interest rates, the demand for residential market has witnessed a steep decline by 25-30% , whereas the demand for commercial space dropped by 35-40% in the NCR region over the last year.”

As a matter of fact, the slew of infrastructure projects and recent government policy announcements are yet to create any significant mark on Delhi NCR’s property landscape. The prices continue to be high and many projects are facing litigation and clearance issues. What’s more, builder floors are more popular with home buyers in this region than society apartments, according to some reports.

However, property experts believe that the factors such as expansion of the metro project, RBI repo rate cut, government focus on affordable housing projects, and rise in office space absorption will bring good news for the North India real estate market.

Rahul Trivedi gives an overview of the North Indian real estate, its challenges & opportunities and speaks to various realty stakeholders of the region.

Many contemplate what went wrong with the North India realty market which has almost come to a standstill in the face of the massive unsold inventory. Indeed, iIt might take a few years for it to recover, but the market is already on the road to revival.

While talking about the real estate market, North Indian market was believed to be the one of the most stable markets across the country. The real estate sector in North India became more prominent due to the massive development in the Delhi and adjoining region which is National Capital Region (NCR). The prominence which real estate sector gained was not only because of the proximity to the country’s capital but also because the region had huge land banks which had enormous potential of development.

The market in the early 2000 was the target of almost all the developers. The Delhi-NCR market was so much in demand that developers acquired huge chunks of land and paid hefty amount against that to the farmers. Seeing the amount, most of the farmers started buying land at cheaper rates from others and sold it to builders at higher prices. For a period of time, this became a business model for few in the NCR region. Currently, there are many people who build a three storey house and sell it by the name of ‘builder floors’. The real estate sector has helped many families, who were not able to earn livelihood through farming, in making quick and huge money from the idea of development.

During the initial phase, the market saw a huge boom and developers were able to make good money from the business, but gradually things changed and the market began to slowdown. Though, there were many reasons behind this slowdown but a major reason was the invasion of investors in the market. Due to this, the prices inflated to the all time high and the market was not in the reach of end-users. As the end-users were not in the market, the number of unsold inventories started increasing. Since, the developers were not able to sell the inventories they began to feel the lack of funds and the timely delivery became a farfetched idea.

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Slowdown in the Sector

 

The real estate sector was one such sector which had minimal effect of global recession, but in last four years the sector has been on a slowdown. The year 2016, has been the worst nightmare for the developers as the year end saw the demonetization drive by the Government.

The residential property market witnessed improved sales in the first six months of 2016 but not in Delhi-NCR. Going by the Knight Frank report, despite one-third of Q4 being the festive season, sales for the quarter fell by 40 per cent. The Q4 was not even able to maintain the rate of launches in the previous three quarters and the launches witnessed a steep fall of 45 per cent in Q4 of 2016.

The JLL report also suggested that there was a steep fall in the residential demand and launches whereas rental value and capital value remained stable.

While, there is an oversupply of properties in Delhi NCR, at the same time, the wait and watch tendency of the end-users is adversely impacting the overall sentiments in the real-estate market of the region.

The Biggest Challenge

The slowdown in any economy or sector is a regular phenomenon and real estate sector is no different, but the real estate sector of North India has other big challenge to worry for. This challenge is to deal with the piling unsold inventories. In the year 2016, the Delhi-NCR registered highest number of unsold inventories of about r 2,50,000 units.  In terms of project launches, the NCR witnessed a fall by 30-35 per cent in comparison to 2015.

The number of unsold inventories increased not only because there were no end users but also because there were several projects which got stuck due to litigation. There were many projects and that too, of the brands which were once known as the trusted one, which got stuck because the farmers challenged the land acquisition.

The developers are now more focused on the deliveries instead of bringing back to back projects. This is one reason behind steep downfall in the launches.

In the image -Please mask or remove Skyrise developers & www.skyrise developers.com

Reforms for Revival

The challenge of clearing the unsold inventories has to be tackled by the developer’s community itself. They have to find a solution to it so that the road to revival gets unblocked and the sector once again starts shining. Though, the various Government schemes would give a much needed boost to the sector but the developers also have to understand the need of the hour.

The price correction is also on the cards as the developers are eyeing the end-users only not the investors. The market sentiment also tends to improve as the banks come up with lowered rate of interest of home loans. Also, the policies like RERA will help the sector in gaining back the confidence of the buyer which it lost due to malpractices which many developers brought in the sector to make easy money. Introduction of RERA will give more power to the end-users thus, giving them a reason to start investing for their houses.

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All the announcements made by the Government will be beneficial for the real estate sector. Developers who will have serious approach towards their work will get opportunity to work whereas fly by night developers will have to leave the market.

With so much said and done, now everyone is eagerly awaiting this year’s Union Budget which is expected to offer relief to the majority of the population. With the Government being so proactive in terms of providing relief to the real estate sector, its stakeholder and the buyers in last couple of months, it is quite evident that a populous Budget is on its way. With such activity, hopes are high for a positive budget for the realty sector this time, if not directly then at least through indirect means. This would not only provide a much needed boost but also the realty sector will be back on the road to revival.

 

About Shubham Singh

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