How unsold housing stock is impacting the current state of the realty sector | The Financial Express

How unsold housing stock is impacting the current state of the realty sector

The spirit of the consumers and the continued thrust of authorities to keep residential units affordable are expected to drive sales of unsold housing units in the country in the near future.

How unsold housing stock is impacting the current state of the realty sector
The unsold housing stock is resulting in increasing supply side challenges for the developers.

The Indian real estate sector found itself in the line of fire as cities worldwide faced lockdowns due to COVID-19. With the pandemic pushing the sector’s recovery from a multi-year slump back to the starting line, realtors struggled to maintain a balance between lowered market rates and long repayment schedules. Low budget spending and lack of labour pushed multiple challenges towards the sector due to unforeseen difficulties. However, as they say, each coin has two sides.

The pandemic did push the fence-sitters towards the market with the realization of the importance of owning a home. Remote working and a better regulatory framework have helped the sector with the recovery it has been waiting for. As buyers were postponing decisions, the poor demand from actual home occupiers was a big challenge for the industry. The pandemic helped them understand the security and comfort of a home that is beyond the monetary value.

With increased demand, realtors have used this opportunity to eliminate the unsold housing stock. According to a report from CII, unsold housing stock rose marginally by 1% to 9.01 lakh units during January-March 2022 across eight major cities compared to the previous quarter on increased new launches of residential properties. The housing inventory overhang across the top 7 cities has reduced to 32 months in 2021 from 55 months in 2020. It is expected that it will continue to fall further in the coming times due to the pent-up demand from consumers.

Here are some factors how unsold housing stock is impacting the Indian realty sector:

Supply side challenges: The unsold housing stock is resulting in increasing supply side challenges for the developers. For instance, the increasing cost of raw materials and consumers preferring near-completion projects has pushed developers into a catch-22 situation. With drying liquidity and increased cost pressures, developers find it challenging to keep the project viable for business.

Less new launches: According to a study, the unit sales increased by 114% in Q4 2021 at 46,750 units compared to 21,832 units in Q4 2020, while launches increased by 71% at 45,838 units as compared to 26,785 units. Real estate developers are holding back new launches and pushing the unsold housing stocks. Developers are also hiring project managers to change the positioning of unsold housing stocks to align them with market demand. This strategy is helping real estate developers to push unsold housing stock and clear their inventory.

Regulatory framework: India’s housing market has undergone a structural transformation over the past decade. It has made the environment safe and attractive for the buyer. As a result, the latent rise in consumer demand is handled by the unsold housing stock available at attractive prices.

Consumer preferences: The vital catalyst remains affordability for the consumer. The correction in real estate prices in the last five to six years has created an encouraging ecosystem. However, many consumers prefer finished to 90% finished properties for purchase. These options are high in demand and low in supply. Despite RERA, consumers like to invest in properties that can provide possession in the short run. It is relatively easier for well-known developers to sell their inventory and get consumers to trust them with their hard-earned money. As a result, reliable developers are making the most of this growth in the domestic market.

The spirit of the consumers and the continued thrust of authorities to keep residential units affordable are expected to drive sales of unsold housing units in the country in the near future. It is essential to understand that the modern real estate consumer is more aware than ever and prefers investing with a reliable and transparent brand. As a result, it should be worthwhile to focus on increasing consumer trust and brand value.

(By Vinit Dungarwal, Director, AMs Project Management Consultants)

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