Unsold housing inventory clearing up as regulatory pressures start to ease

Rashmi Pratap Mumbai | Updated on August 27, 2018

After reaching an all-time high of 57 months in December 2016 quarter when demonetisation was announced, unsold inventory in residential real estate has come down to 40 months as buyers are returning to the market to take advantage of stagnant property prices and GST benefits on ready-to-move in properties.

According to real estate consultancy Liases Foras, housing sales had hit a low of just about 50,700 units across the eight tier-1 cities in the demonetisation quarter but have now jumped to nearly 70,000 units in the three months ending June this fiscal. Months inventory is a measure of how many months it would take for the current inventory of homes in the market to sell.

“Demonetisation followed by the new regulatory regime (RERA and GST) and the amendment to the Benami Properties Act impacted not just real estate but also the Indian economy.

So there was a slowdown in sales. But sales started picking up after a year as it became clear that the new regulatory scenario was actually beneficial to the home buyer,” Niranjan Hiranandani, co-founder and Managing Director of Hiranandani Group and President of Naredco, told Business Line.

Stagnant prices

Liases Foras Managing Director Pankaj Kapoor said the decrease in unsold inventory can be partly attributed to price rationalisation.

“The prices have been stagnant for three years now and that is pushing sales,” he said. The weighted average price per sq ft as been stable at around ₹6,700 per sq ft since 2016.

During the last fiscal, sales growth was around 13 per cent and this June quarter, there is an increase of 6 per cent. “Growth in sales velocity has helped reduce the inventory overhang,” he said.

This jump in sales has also been driven by affordable housing, where government incentives under the PM Awas Yojana are attracting buyers to homes under the ₹25 lakh tag. Between the first quarter of 2016 and 2019, affordable segment almost tripled in sales, Kapoor pointed out.

GST boost

Hiranandani said GST translates into 12 per cent tax payable by any home buyer who books an under-construction apartment.

“So nobody wants to buy until the building receives an occupancy certificate when the GST is not applicable. Given the home buyer’s stance, price rationalisation is a simple reaction of market forces to buyer sentiment,” he said.

Also, GST at a lower rate of 8 per cent is applicable on affordable homes. “There are advantages, which have been granted to affordable homes and driving sales. If these were extended to the entire residential real estate segment, it would help in fueling sales further,” Hiranandani said. The current 40 months of unsold inventory is also far from the level of 12-15 months, which efficient markets maintain.

“If economic policies could be tweaked so that the interest rates could be reduced as also taxation benefits enhanced, it would be a positive step on part of the government which would further sales in the segment,” Hiranandani added.

Published on August 27, 2018

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