Unsold inventory in real estate is piling up

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It’s a buyers’ market. Or so say analysts tracking the real estate market. Reams and reams have been written about how anyone planning to buy a house can pick and choose from the large stock of unsold inventory and pay lower than what was the price a few years back. But Delhi resident Simi Mohan isn’t convinced. “I don’t want to book a flat in any upcoming project because I don’t know when I will get it. And the prices of the already built flats are not in the affordable range for me. So how is it a buyers’ market?” asks the 32-year-old paramedic, who works in a government hospital. Mohan has a point. The unsold inventory is piling up, developers are sitting on unfinished projects and the consumer is nowhere in sight. Regulatory norms in the sector have changed in favour of the buyer, but sales are not improving.

A report released last week by property consultant Knight Frank India says housing sales fell 26% in Delhi-NCR in the first half of 2017, and the unsold housing stock stood at a staggering 1.8 lakh units—the highest in the country—which will take developers four-and-a-half years to sell. As per the report, this slump is despite the 20% price correction in the past 18 months. About 17,188 units were sold in the first half of 2017 compared with 23,092 units in the same period last year. “The real estate market for residential units remains subdued owing to several factors, which mainly include incomplete projects adversely affecting the confidence of buyers, over-leveraged balance sheets of frontline realty firms and a weak job market,” says DS Rawat, secretary general, Assocham, an apex trade association.

From 2007 to 2010, construction across various cities was at a peak and many projects were launched. Prices reached an unattainable stage towards 2013. Around the same time, the country was hit by job losses. Many fly-by-night operators fled the scene, cheating consumers of their hard-earned money. “The trust factor is at an all-time low. People are not ready to invest unless it’s a ready-to-move-in flat or a reputed developer,” says Neeraj Bansal, partner and head, ASEAN corridor and building, construction and real estate sector, KPMG India, a consultancy firm that tracks the sector.

But these reasons are nothing new and it’s not the first time that the real estate market has been hit so badly. “This time around, the slump has been aided by regulatory factors,” says Gulam Zia, executive director, adviser, retail and hospitality, Knight Frank India, adding, “Regulatory norms like RERA [Real Estate (Regulation and Development) Act, 2016], GST (Goods and Services Tax), Benami Property Transactions Act, together with demonetisation, are impacting the sector and this effect is here to stay for a few months.” As per Frank Knight India, the stock of unsold units in the top eight markets of the country stands at 5.96 lakh units. The unsold inventory made it a buyers’ market, leading to a dip in prices last year, and experts point out that it has become even more so this year.

Unrealistic prices, coupled with demonetisation, led to a price fall in the range of 15-25% in 2016. “It was a buyer’s market last year and has become even more so this year. Prices are at their lowest point, banks are eager to lend and developers are bending over backwards to accommodate customers with more discounts and attractive offers,” says Anuj Puri, chairman, Anarock Property Consultants (formerly JLL India-Residential). Most of the inventory in NCR is priced 20-25% lower than in 2012. Even discounts, flexi payment plans and freebies such as club memberships haven’t been able to turn around consumer sentiment and result in upward sales.

Customer behaviour has changed in the past few years, explains Zia, with buyers having lost confidence in a developer’s ability to construct and deliver a project on time. The market may have plenty to offer, but the buyers are wary of the developers’ tall claims. “There is plentiful supply in the market, even in the ready-to-move-in category. If there is any difficulty for buyers at all, it probably lies in the fact that they are spoilt for choice,” Puri says. The lack of conviction in a builder’s ability to deliver isn’t an overnight phenomenon. It has taken shape over a period of time. Developers in the past have launched massive townships and often used customer advances to buy land or launch other projects. This often led to delays in construction by months and even years, resulting in an erosion of confidence among home buyers. The situation has been aggravated this year by the various regulatory norms—demonetisation, RERA and GST—which have all come one after another in quick succession in the past seven-eight months.

“As of now, RERA is a long-drawn battle. The regulator is yet to be appointed and then the builders have to register themselves. We can’t trust the developers yet,” says Vineet Kumar, a senior business analyst with Royal Bank of Scotland, Gurugram. He had booked a flat with a prominent builder in Noida, and is waiting for possession for the past seven years. He, along with 1,500 other flat owners in Noida, now plan to file a case under the UP Apartment Act against the errant builder.

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