CW PROPERTY TODAY speaks to developers, realtors and consultants to get a bird´s eye view on the status of unsold inventories in India´s eight major cities: MMR, NCR, Bengaluru, Chennai, Hyderabad, Pune, Ahmedabad and Kolkata.
The present Indian real estate scenario is witnessing a paradox.
If on one hand, estimates indicate that over 10.2 million inventory is lying vacant across the country at present, stats on the other hand reveal that India is reeling from an acute housing shortage.
´Urban India today faces a shortage of 19 million housing units,´ underlines Sumit Jain, CEO and Co-Founder, CommonFloor.com. ´To further analyse this data based on the income group, the economically weaker section (EWS), with an average annual household income of up to Rs 1 lakh, accounts for over 55 per cent of this shortage while 40 per cent of the shortage is from the lower income group with an annual income of Rs 1 lakh and 2 lakh.´
While this looks like the outcome of a demand-supply mismatch, what is leading the sector into this situation?
Dr Samantak Das, Chief Economist & National Director-Research, Knight Frank India, helps us identify the missing factors. ´First, on the supply side, there is a resistance on price´ he elaborates. ´Second, on the demand side is the confidence of consumers on delivery of projects as the maximum chunk of unsold inventory is under construction. Also, the historical evidence of developers in delivery is not very good, and we have delays to the tune of two to three years. The third important factor is confidence on economic sentiment.´ While he agrees that economy recovery is happening, from the perspective of delivering projects, developers are more focused on construction and completion rather than new launches. ´New launches have come down to 50-60 per cent in cities like NCR and Mumbai,´ he adds.
Pankaj Kapoor, Managing Director, Liases & Foras, sees the missing factor in policies. Saying,´Success of real estate means success of housing for all,´ he highlights the biggest issue as unproductive land prices that make projects unviable. Hence, land price moderation is important. Here, he also adds, ´India has reached a threshold where vacant land tax can be imposed.´ Ironically, despite ample availability of land, the issue of land scarcity prevails.
Liases & Foras recently released a report, Residential Real-Estate Market, Q1FY15-16, with stats on eight major Indian cities: the Mumbai Metropolitan Region (MMR), National Capital Region (NCR), Bengaluru, Chennai, Hyderabad, Pune, Ahmedabad and Kolkata.
The report clearly states that the cumulative sales across eight major cities in India declined by 4 per cent on YoY basis, from 76.5 million sq ft in Q1 2014-15 to 72.3 million sq ft in Q1 2015-16. Ahmedabad, Bengaluru, Chennai, Kolkata and NCR have witnessed a major fall in sales, whereas cities like Hyderabad, MMR and Pune have shown improvement in sales on YoY basis. However, on QoQ basis, drop in sales was just 1 per cent.
Similarly, between Q1 2014-15 and Q1 2015-16, unsold stock increased by 18 per cent to 1,017 million sq ft. Except Hyderabad, all other cities have shown a rise in the unsold, with Bengaluru showing a maximum 55 per cent increase in unsold stock on YoY basis. Although the growth in NCR has been only 7 per cent, the region still tops the chart with 326 million sq ft of unsold stock, followed by the MMR region standing at 201 million sq ft. On QoQ basis, unsold stock rose by 8 per cent. Ahmedabad, Bengaluru, Chennai, MMR, NCR and Pune have shown a major rise in unsold stock, while Hyderabad and Kolkata have shown decline.
´Despite mounting inventories across the country, one can look at the scenario from a positive perspective,´ says Jain. ´With huge inventory piling, cash-starved developers are mainly focusing on completing already launched projects rather than coming up with new supply.´
Against this backdrop, CW PROPERTY TODAY analyses each of the eight major cities to understand the current scenario on sales, unsold stock and movement in pricing...
In a Knight Frank report released this year, Hetal Bachkaniwala, Vice President-Research, Knight Frank India, mentioned that in H1 2015, Ahmedabad reported its five-year low sales volume at 7,750 units, which is 26 per cent lower than the same period the preceding year. ´Slower than expected recovery in the economy, poor business sentiment and a delay in the reduction of home loan interest rates by banks have hampered revival in sales volume,´ he says. ´Taking cognisance of falling demand, developers in Ahmedabad have refrained from launching new projects during H1 2015, which dropped by 11 per cent compared to H1 2014.´ That said, East Ahmedabad, with locations such as Naroda, Vastral, Nikol and Kathwada Road, witnessed the maximum number of launches during H1 2015.
However, for Manish Shah, Director, True Value Nirman, unsold inventory is a hyped story. In his view, there is a quantity of unsold inventory in the eastern side of Ahmedabad, that too in one or two-BHK apartments, where developments exceed demand. As far as the western side of the city is concerned, ´There is no unsold inventory bearing one or two areas where around 200-500 apartments must be unsold but it is not a huge quantity.´
For his part, Brijesh Patel, Proprietor, Bala Estate, and President, Ahmedabad Realtors Association, tells us, ´There is not much unsold inventory in ready possession. These are majorly being faced in projects under construction.´ Leading to this situation is an increase in land and construction costs. Owing to this, investors have been buying less and the real user is the purchaser. Hence, sales are happening only after project completion.
AT A GLIMPSE
Speaking on the current scenario in the city, A Bimal Hegde, CEO, Chartered Housing, says, ´There may be a small number of projects in a certain price bracket that are larger than expected.´ However, in his opinion, this does not represent the entire real estate market. ´Most often, inventory levels in real estate are not estimated correctly,´ he reasons. ´Residential projects take three years and above to complete and, therefore, the total number of units available in the project should ideally be split by the number of years for completion of the project, as no developer would sell all inventory on launch.´
Farook Mahmood, Chairman & Managing Director, Silverline Group, quotes from a World Bank report that says there is only 6 per cent ready-to-move-in unsold inventory in Bengaluru. While assuring us, ´we have been doing regular sales,´ he further informs that companies like Prestige have launched about 12 projects in the past six months and almost everything has sold pretty well.
AT A GLIMPS
´Developers have become cautious and wary of taking up new projects,´ agrees Amit Damodar Chugh, Partner, Chattels Inc, and President, Chennai Real Estate Agents Association. In terms of real numbers, he shares that Chennai has the lowest overhang of about 47,000 units, with an absorption rate of 4,400 units per month as reported by Brookfield Financial in its Q2 -2015 report. The off-take is pretty sluggish, and he reasons, ´Slow market sentiments, bearish outlook on prices, high-priced units, delays in approvals and conversions, high interest costs, high price of land and low creation of job opportunities have combined to affect absorption rates.´ All projects are slow and delayed owing to slower sales and peak supply is in the´under-development´ space.
For his part, T Chitty Babu, Chairman & CEO, Akshaya, observes, ´The off-take is less, which means current inventory in hand is good for the next two quarters, hence the slowdown in launches.´ In a different perspective, he believes unsold inventory should always be available with any industry considering that it takes a minimum of three to four years to deliver any project.
Meanwhile, Vijay Sarathi, Director, Trinity Partners, and President, NAR India, points out that in the past few years, owing to the bifurcation of the state, no new projects were announced. ´It is only in the past six to eight months that we are witnessing new launches and there is not much unsold inventory,´ he adds. ´For the 5-10 per cent unsold inventory present, most is under construction.´
In such a scenario, while Prem Kumar, Managing Director, Doyen Construction, believes that there would be a need to cut down on new projects, he reasons, ´While price reduction is elastic only to a certain extent, developers can make projects more exciting for buyers by adding unique facilities.´ Drawing a parallel with Bengaluru, he says statistics suggest that the absorption rate in relation to volumes is better in Hyderabad, and that´s a positive thing.
HL Bagra, Director-Admin & Projects, Araham Realty, also agrees that Kolkata has not witnessed much change in terms of unsold inventory. However, he says that while ready and complete projects are almost sold, sales in projects under construction are slow. He adds, ´The current unsold inventory in projects under construction in the residential and commercial segments would be around 50 per cent on an average in various locations.´
AT A GLIMPSE
Jaysinh Kapadia, Managing Director, Yashraj Homes, and President, The Association of Real Estate Agents-Mumbai, suggests that this is not a good time for launches. He says, ´At present, builders are doing project launches but the response is only about 20-25 per cent.´
Here, Chintan Sheth, Director, Sheth Corp, shares his perspective. ´An inventory is only called unsold if the project is finished or completed,´ he says. Currently, according to him, only 3.35 per cent of total unsold residential units across Mumbai, Thane and Navi Mumbai are ready for possession. Thus, developers should focus on selling existing inventories; once that´s done, they can target new launches in this festive season. He adds that the past six months have been good for the developers and the industry overall, with quite a few new project launches being announced.
Col KJ Singh (Retd), President, Association of Certified Realtors of India-Delhi, and Owner, Dunamikos Realtors confirms that there is a sizeable unsold inventory build-up in certain areas for two to three years. However, he believes, ´Project launches from a good corporate house or a reputed builder will not get affected. There is always a buyer for good projects at good rates.´
For instance, the projects of Amrapali Group have many takers in the market with around 80 per cent booking for its overall projects. Anil Sharma, Chairman & Managing Director, Amrapali Group, says, ´The situation would have been far better if regulations were better. This would have helped restore buyer confidence in our projects and the real estate industry as a whole in the Noida and Greater Noida regions.´
AT A GLIMPSE
Revealing statistics from the Gera Pune Residential Report, July 2015, Rohit Gera, Managing Director, Gera Developments, tells us: ´The total inventory (gross supply, ie, all homes under construction as well as ready projects with more than 5 per cent unsold inventory) has increased from 245,639 homes over 2,761 projects 12 months ago to 280,913 homes across 3,067 projects.´
Commenting on the current situation, Vanessa DeSouza, Proprietor, Empress Estates, and Immediate Past President, Estate Agents Association of Pune, says, ´With my experience of over two decades, when you talk of unsold inventories, this is directly related to market conditions, which is like a cycle and it´s just a phase. Hence, the investments in unsold inventory get fulfilled over time.´ For the moment, she does not see a problem of unsold inventory in the city. She adds that while demand for large residential apartments might be slow, there is a lot of demand for mid-segment apartments.
The Chinese context:
According to Sumit Jain, CEO and Co-Founder, CommonFloor.com, ´If we look at our neighbour, China, there is a similar situation of oversupply haunting them. But the authorities there have hit upon an idea to turn around a worrying oversupply of property that has been dragging down prices - buy it up and convert it into social housing.´
A note from Barclays reads: ´Although a disorderly correction is not expected, given that the real estate sector is too important (to the Chinese economy) to fail, many look for a multi-year adjustment process and say that a gradual slowdown in property investment is their base case... The government´s latest plan to purchase unsold residential properties and convert these units into low-cost public housing is seen as a practical way to reduce inventory levels.´
Jain adds, ´Experts feel this will be good for existing investors who have been facing negative growth for the past two to three years. It will also provide for those who were left behind to own a house in a rapidly urbanising country with prices far beyond their reach.´