The number of unsold units remains high despite fewer project launches and that’s a matter of concern
According to a PropTiger report, Pune witnessed an increase of 59% in sales during the December quarter FY19 compared to the same quarter in FY18
After continuous fall in sales of residential units since 2013, the year 2018 brought some respite for developers as sales volume improved slightly. However, the number of unsold units remains high despite fewer project launches and that’s a matter of concern for supply side stakeholders.
Increase in sales
Real estate developers have been struggling to keep their sales books rolling for the last few years as demand from end-users has been low, while investors have been steering clear of the market.
However, according to reports from different real estate consultants, sales of residential units improved during 2018. For instance, according to a report by Knight Frank India, a real estate consultant, “Residential sales grew by 6% during the year 2018 compared to the previous year, 2017." The report was based on the sales figures from eight cities—Mumbai, NCR, Bengaluru, Pune, Chennai, Hyderabad, Kolkata and Ahmedabad.
Similarly, according to the quarterly report from PropTiger.com, part of Elara Technologies Pte Ltd which also owns Housing.com and Makaan.com, “On year-on-year basis, sales improved on average by 30% in Q3 2019 compared to Q3 2018." The PropTiger report covered all the cities that Knight Frank India did, but assessed Noida and Gurgaon separately instead of treating NCR as a whole.
Though sales improved, the numbers are far from offering comfort to developers. Supply side stakeholders were expecting much better sales during 2018, but they remained below expectation during the 2018 festive season.
Liquidity crunch in the industry at the end of the year also had an impact on the sales. According to the PropTiger report, Pune witnessed an increase of 59% in sales during the December quarter in FY19 compared to the same quarter in FY18, followed by Mumbai with 54% increase during the same period. However, unlike Mumbai and Pune, the NCR market did not do well. Gurgaon witnessed a fall of 26% in sales, while Noida sales improved marginally by 4%.
Given that most developers are focusing on clearing inventory and not launching new projects, “unsold inventory came down by 10% from 892,175 units to 799,081 in top 8 cities during Q3 FY19 compared to Q3 FY18, respectively," said the PropTiger report.
Though the inventory came down a bit, the number of unsold units is still very high and continues to remain a concern for developers. According to the PropTiger report, “Inventory overhang has decreased to 31 months as compared to 34 months from the last quarter. Ahmedabad has the highest inventory overhang of 45 months followed by Kolkata at 41 months. Hyderabad witnessed the lowest inventory overhang of 20 months, followed by Chennai and Bengaluru at 22 and 24 months, respectively."
Inventory overhang indicates the number of months it will take to clear existing inventory at the current sales volume. According to another report by Anarock Property Consultants, “An inventory overhang of 18-24 months signifies a fairly healthy market."
On the demand front, most homebuyers are considering buying ready-to-move or near-completion apartments. There is huge demand in the affordable housing segment, thus most launches in 2018 were below the price range of ₹50 lakh. The trend is expected to continue even in 2019 and further. Also, until the real estate market remains flooded with unsold inventory, prices will remain stable.