Why builders won't listen to Deepak Parekh, Piyush Goyal
At a webinar on ‘The Real Estate Challenge’ organised by Construction World, when an audience poll question was put to the over 1,200 attendees as to how many would be interested in buying a residential property in case the prices were reduced by 30 per cent, affirmation was received from 78 per cent of the attendees.
However, the panellists at the webinar discussion did not want to deliberate over the issue as the reduction of 30 per cent was unthinkable due to the lower margins that everyone has been working upon.
To add more perspective to this, we now know that over 1.2 million houses are part of unsold inventory across 30 cities in India. Of these, the top eight cities, including Mumbai Metropolitan Region, National Capital Region, Bengaluru, Hyderabad, Chennai and Pune alone account for nearly a million houses. This accounts for a four-year inventory meaning you can tend to the real estate demand for the next four years without building a single house, provided the prices are acceptable to the buyers.
In our June 2020 edition, we also wrote about the The Real Estate Pile-Up – Developers sitting on unsold inventory worth Rs 3,700 billion! Watch out for the June edition of CW for this report.
Here is where the rub is. Half of the total unsold inventory is under affordable housing category and yet is lying unsold. This clearly means that there is benefit in keeping inventory unsold than selling it at a lower price.
Union Minister Piyush Goyal and HDFC Chairman Deepak Parekh have urged the developers to sell inventory by reducing prices but they are not seeing what the developers are experiencing. Most of them are indebted and the value of the security has been appraised some time ago when rates were better, based on which loans have been extended to them. If they sell even a portion of their stock at a lower price the lenders will demand more security to cover the loan outstanding. No wonder the advice of the learned fall on deaf ears of the experienced.