High residential inventory remains a worry for investors in realty stocks2 min read . Updated: 18 Oct 2020, 09:48 PM IST
Discounts need to be extended beyond the festive season for unsold inventory to reduce meaningfully
Cash-starved residential real estate companies are focusing on monetization of ready inventory in the run-up to the festive season. A low mortgage rate of around 7% and festive discounts are expected to prompt fence-sitters to make property purchases.
Developers are offering many freebies and easy payment options to push inventory, according to channel checks by brokerages. Higher discounts are being offered in the luxury and super-premium segments as there were hardly any sales in these segments in the June quarter, said analysts.
The stressed micro-market of Central Mumbai has seen many deal closures in H1FY21 for completed projects, according to ICICI Securities Ltd. “As per our channel checks, these units, which had a quoted price of ₹6-10 crore pre-covid are seeing transactions closing at a 20-30% discount to quoted prices," said a 7 October report by the brokerage house.
Dealer checks show that enquiries improved for mid-range and affordable segments, too, in the September quarter.
These measures are yielding some results, but the level of unsold inventory across key markets remains high. Knight Frank India’s latest research showed that unsold inventory in the September quarter of this calendar year for eight key metros stood at 440,000 units. This is a marginal reduction of 1% compared to the same period last year, it said in a report on 8 October. Among tier-I cities, Mumbai, Delhi, Pune and Bengaluru have the highest inventory of unsold units.
The Maharashtra government recently reduced stamp duty from 5% to 2% for a stipulated time. However, that was not enough for big-ticket items, such as buying a house, especially in metros, said analysts. For unsold inventory to meaningfully reduce, discounts clearly need to be extended beyond the festive season.
“Within the residential segment, the demand for ready-to-move-in properties is higher than those under construction. In the current scenario, customers would want to minimize completion risk, so developers should tap in on this. They should extend discounts for two-three more quarters after the September quarter. Of course, there will be some impact on margins because of the discounts, but dealing with that is better than sitting on huge unsold inventory. High unsold inventory will weigh on new launches and the Street does not like a clouded outlook on that front," said an analyst with a domestic brokerage house requesting anonymity.
Meanwhile, the near-term sales outlook for the realty sector is likely to be challenging despite the extension on loan moratorium. A poor employment scenario could also deter potential buyers from investing in the property market considering the cost of purchase, according to analysts.