De-Jargoned | Real estate inventory

De-Jargoned | Real estate inventory

According to a recent report by Standard Chartered Bank on the real estate sector, the pan-India residential inventory level during March this year was lowest in the past three years. In other words, there were more buyers in the market in March in the last three years. However, this may change in the near future: Rising interest rates are likely to deter investors.

What is inventory?

Inventory is the total amount of goods or material contained in a store or factory at any given time. The word “inventory" can refer to both the total amount of goods and the act of counting them. Many companies take an inventory of their supplies on a regular basis in order to avoid running out of popular items.

Real estate inventory: The real estate industry, too, produces products, including apartments, villas, commercial spaces and plots. For real estate companies, the number of residential or commercial units at a given time is their inventory.

What it tells

Real estate inventory levels basically indicates the sale momentum for a company or a region. It is normally measured in months and, therefore, shows the time a company or region may take to sell existing units at the current sales pace. For example, if a company has 20 million sq. ft area and expects to sell the entire stock in five months, the firm would have an inventory for five months. But if a second company has 25 million sq. ft area and expects it to sell in five months itself, the second company’s inventory, too, will have an inventory for five months.

When sales witness a slump, or when there are less buyers in the market, the inventory level goes up as new supply in the form of new properties keep adding to the inventory. This also shows that a company is witnessing poor sales. On the other hand, if a company is able to sell more number of units, it shows that the company is registering healthy sales.

A company with high inventory may be facing construction-related problems, which may directly impact a project you may be wanting to buy a house in. But a company with low inventory, which is selling well, will have better financial strength to complete its construction and the prospects of project delivery will be brighter.

Where can you get information on inventory

Listed companies give information on the stock sold in a quarter in their financial results. The results document also contains information about whether the company missed its yearly target of development and subsequent sales of the inventory. These figures may not give you the exact number of inventory with a company, but it will give you an idea if the inventory is piling up because of a slowdown in the market. It is difficult to collect information about unlisted companies in the absence of any regulatory authority.