Builders sitting on unsold inventory of 46 months

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 demonetisation 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.

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