Residential property sales are expected to touch a decadal high this year, but unsold inventory in the September quarter continue to remain almost at last year’s levels. This is mainly because housing launches are also happening in a big way, say analysts.
In residential real estate, unsold stock refers to the properties that are in various stages of construction and not delivered to buyers.
More than 328,000 units were launched in the top seven cities in the first nine months of this year, according to Anarock Property Consultants. In comparison, about 265,000 units were launched in the first nine months of 2022.
“Given the addition of this significant new supply into the market, the unsold inventory declined just 3% on an yearly basis (in Q3CY23),” said Anuj Puri, chairman at Anarock Property Consultants. Available inventory across the top 7 cities is at about 610,200 units, the brokerage said.
Another consultant Knight Frank said that the unsold inventory level has increased 8% y-o-y as fresh development activity has intensified. However, this must be read in conjunction with the sales momentum to arrive at a better assessment of market health, it said.
Currently, quarters taken to sell, or QTS, stands at 6.5 quarters compared to 7.5 levels a year ago. It signifies that the overall market traction has improved despite the increase in unsold inventory levels, Knight Frank said.
The QTS level represents the number of quarters required for the existing unsold inventory to be consumed at the current rate of sales. A reducing QTS level depicts a market where demand is gathering momentum.
“Inventories go up not because of low sales but because of introduction of new projects,” said Pushpmitra Das, founder of Justo Realfintech, a real estate marketing firm, and former CFO of Bombay Dyeing.
Das says every area in cities such as Mumbai are seeing new launches.
Suppose if you have 100 units and sell 20, the rest of it is unsold stock, and again if you introduce 50 more by a new project or a new phase in the same project, it goes up to 130, he said.
Pankaj Kapoor, founder and MD of Liases Foras, a real estate rating and research firm, added: “New launches are more than sales taking place. That’s why unsold stock is also high.”
Inventory overhang has improved so is the magnitude of launches, he said.
Sanjay Dutt, managing director of Tata Realty & Infrastructure agrees. “Sales and new launches, including NCLT stuck projects and SWAMIH-funded affordable projects, have led to the increase in supply but yet inventories are not excessively high,” Dutt said.
He added that the current level of inventories are remarkable given the price increases in projects.
The Special Window for Affordable and Mid-Income Housing (SWAMIH) Investment Fund is backed by the Centre and managed by SBICap Ventures. It is a social impact fund specifically formed for completing stressed and stalled residential projects.
Average residential property prices across the top 7 cities saw a growth of 11% – from `6,105 per sq ft in Q3 of 2022 to around `6,800 per sq ft in Q3 of 2023.
“Projects which got delayed or went slow were completed in the last five years. Buyers lapped up completed projects,” said Sunil Rohokale, managing director and CEO at ASK group.
He said if sales velocity is maintained, the problem of unsold inventory would not be much. Because of the RERA Act, developers are prudently launching new projects after all approvals and with financial closures as they have to meet scheduled completion periods.
“The demand is projected to increase by 8% compared to 2022, leading to a 5% decrease in unsold inventory at the end of 2023 compared to the same period in the previous year,” said Anand Lakhotia, co-head, real estate funds, Motilal Oswal Alternates.