Higher sales and declining launches help cut inventory in real estate sector

Real estate sales maintained their growth momentum for the second consecutive month in December 2018, analysts at Kotak Institutional Equities said in a note to clients. This was accompanied by a decline in new project launches. The combination has led to a drop in inventory. However, despite the correction, the unsold inventory amounts to about three years’ sales, point out Kotak’s analysts.

At an all-India level, property sales clocked 9% year-on-year growth to 34.6 million sq. ft in December. At the same time, the liquidity crunch in the market—triggered by the Infrastructure Leasing and Financial Services Ltd fiasco—weighed on new launches, which fell 38% year-on-year. The all-India residential inventory fell 10.5% to 1.25 billion sq. ft compared to a year ago.

The goods and services tax rate on under-construction properties was recently reduced from 12% to 5%. Despite the decision coming as a sentiment booster for real estate stocks, its impact on realty sales is yet to be seen.

Analysts at Kotak expect the move to have mixed implications for the sector, with high-price inventory markets (such as Mumbai and the National Capital Region) benefitting the consumer. The absence of input tax credit is seen impacting overall costing in cities, such as Bengaluru, with lower realizations, they said.