Tough times are far from over for the real estate sector. The inventory pile-up across the National Capital Region (NCR), Mumbai Metropolitan Region (MMR) and Hyderabad have almost doubled in the last three years, signalling the market is to yet recover.
In the NCR, the inventory level reached 31 months at the end of March 2013, compared with 15 at the end of March 2010. In the MMR, the inventory level was at 40 months at the end of March 2013, against 17 months at the end of March 2010. For Hyderabad, it reached 49 months at March 2013, compared with 23 months at the end of March 2010, according to data by real estate research firm Liases Foras.
Inventory denotes the number of months required to clear the stock at the existing absorption rate. An efficient market maintains an inventory level of 8-10 months. Experts attribute this to economy slowdown and political uncertainty with the general elections round the corner.
“Buyers are in a wait-and-watch mode. The demand is there, but people are delaying their purchasing decisions due to various factors which is leading to such a huge inventory pile-up,” said Harinder Singh, managing director of Realistic Realtors.
Even in such a dull market, developers are launching new projects. While this enables them to generate cash flow, it has also led to huge inventory levels.
Singh said developers need to build projects on a land under certain timelines according to the licence/lease agreement.
This is one of the reasons for new launches, besides getting approvals to go ahead for the projects.
While most of 2012 was challenging for the sector due to economic factors and mis-priced projects, by the end of the year, realisation seemed to have dawned on developers that projects would be successful only if they were launched at lucrative prices, said Samir Jasuja, founder and CEO of PropEquity, a real estate consultancy. “That has been the basis for majority of the launches in 2013,” added Jasuja.
According to another expert, the sector is not moving at a fast clip. “Either the new supply in the market is abundant or the absorption level has slowed down, which results in high inventory level,” he said.
However, anomaly still surrounds the sector. With such huge pile-up, prices should soften but it doesn’t really happen as developers hoard on to their property hoping to sell at the same price or an increased level.
After a while, developers start repackaging their units by giving freebies, discounts and various other schemes to attract buyers. “This, in a way, denotes price correction only,” said an executive at a real estate firm.
According to Realistic Realtors’ Singh, this is the right time for the investors to buy property as they can negotiate for the best price in a slow market situation.