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Unsold Inventory: Impacting The Real Estate Scenario

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Unsold Inventory: Impacting The Real Estate Scenario

A recent report says that the major cities of India saw 6.85 lacs of unsold housing units at the end of the September 2017, a nine per cent fall from the previous year ago period. Delhi-NCR sees the maximum number of unsold units at two lakhs, although it declined by 12,000 units from the 2016-September.  

Serious issues like non-implementation of the Real Estate (Regulation and Development) Act (RERA) to the full extent, the mismatch of demand-supply in terms of categories and the trust deficit between builders and buyers, are being considered as the main reasons behind the piling up of the inventory.    

“This trust deficit between buyers and developers has turned chronic due to the developers’ failure to deliver on promised possession timelines and project specifications. Also expecting a further drop in prices, the buyers are staying away from the market and waiting for the projects to be listed with the real estate regulatory authorities” says, Anuj Puri, chairman of Anarock Property Consultants.

Acknowledged by the local market, Gurugram stands at the top of the list with the highest inventory pileup in India. It is being claimed that the clearances related to the RERA, have led to this unprecedented slowdown.

Builders usually sell partial inventory, about 60 percent, at normal market rates and the remaining inventory at lucrative pricing. So all the earning from the premium pricing, was invested to construct further units, hence circulating the money in the system only. Now after recent reforms like demonetisation, sales of premium pricing have stopped. This led to the stalling of construction, as there was no cash.

“The unsold inventory percentages to 60 percent, which has put the builders with a shortage in funds. The increasing trust deficit between the buyers and the builders is imminently evident. As many major players of the industry are behind bars, but it still doesn’t solve the problems of buyers who continue to stay at the receiving end, paying rent and EMI” says, Harish Arora of Wadhwa Associates, a local real estate agent.

Demonetisation has seriously affected the market and the premium segment almost disappeared and so did its buyers. Now, the selling action has resumed as there are affordable homes too, with a range of Rs 15-20 lakhs. Another important factor favouring the affordable housing, is that there are housing loan rate discounts and bank rebates for the buyers. The premium housing segment doesn’t enjoy the same subsidy benefit. So, now, affordable housing segment has garnered the attention of the majority of the builders.

There was a flow of significant finished inventory coming into the market, with the developers trying to push sales before the implementation of RERA. It all led up to a new pile-up of inventory, hence adding more to the finished inventory. The market is looking up to a correction, in a period of six months to one year in the future, before new projects starts emerging in the market.

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