Inventory of unsold houses declines but recovery still far from sight

The recent surge in house sales has brought some relief to builders and raised hopes of recovery among them but experts are being cautious. Representative purpose only. Photo: iStock

The real estate market, which saw a raft of reforms in the last two years, continues to recover as home sales rose in the first quarter of 2019 despite fewer launches. However, full recovery, is still far from sight.

Over the past few years, real estate market was reeling under the impact of the triple whammy of demonetisation, the roll-out of goods and services tax (GST), and the introduction of new real estate regulations (RERA). Meanwhile, home prices shot up too far, too fast due to the competition as developers’ focused on high-end housing. Thus, customers became reluctant to buy houses, resulting in the piling up of unsold inventories.

Housing sales and new launches jumped up by 18 per cent and 33 per cent, respectively, across the top seven cities compared to 2017, as per ANAROCK data. This was despite all headwinds including the Non-bank financial institutions (NBFCs) facing liquidity crisis in 2018.

As a result, the unsold inventory across the top seven cities declined by 7 per cent to 6.73 lakh units in the fourth quarter of 2018 as against 7.26 lakh units in the last quarter of 2017. It indicates that due to the overall positive sentiments among home buyers, those sitting on the fence since long have ultimately taken the plunge.

Advertisement



Experts say that the surge in demand is for the mid-income to low-end housing segments. It comprised 39 per cent share of overall new supply between 2014-2018. One of the key drivers for a shift in buyers’ behaviour towards is the government’s push for affordable housing by providing various incentives.

Affordable housing

“The Pradhan Mantri Awas Yojana (PMAY) certainly has played a key role in changing buyers’ behaviour to buy mid-income and affordable houses. The government has provided several incentives to first-time homebuyers and buyers of affordable housing by way of tax breaks to both developers and buyers of such housing,” Anuj Puri, Chairman, ANAROCK Property Consultants told The Federal.

Recently, the government announced major tax benefits that will help stimulate demand for affordable housing. Interest deduction up to ₹3.5 lakh for affordable housing (priced < ₹45 lakh) as against ₹2 lakh earlier will now be available until March 31, 2020. This can help attract first-time homebuyers, Puri added.

Due to these incentives, buyers have moved towards affordable housing segment. “Affordable Housing has gained centre-stage in residential segment today due to multiple sops offered by the government over the last five years, driving both sales and new supply.”

Recovery in sight?

The recent surge in house sales has brought some relief to builders and raised hopes of recovery among them but experts are being cautious.

“Every time there seemed to be recovery signals, the sector was hit by a new bombshell of sorts. RERA, GST and demonetisation were like a triple tsunami that rocked the sector to its foundation,” Puri said. However, they were necessary moves as the sector needed to be cleaned up so that it can remain sustainable, he added.

Experts feel that even though the sale of houses are in green now, the sector is far from recovery. “The real estate sector is adjusting to changes but I have my doubts about it recovering. ‘Recovery’ is also not all about buying and selling houses. We are nowhere close to what the market was five years ago,” Gulam Zia, Executive Director of Knight Frank, an estate agency told The Federal.

Puri explained that the demand we’re seeing now is primarily from end-users — investors have more or less quit the housing market and are focusing more on commercial real estate. This will change as the tide turns more favourable, but it will take at least a year or two more for housing to become an attractive investment asset class again.

Luxury houses

In the unsold inventories, the biggest pile-up has been in the luxury and mid-income segments. Most of these high-end housing units were built after a peak in wealth creators in 2007-08, before the financial crisis. Builders assumed the demand for high-end houses would continue to rise but things changed after markets crashed. Now, developers have realised a shift in buyers’ sentiments and are focusing on low-end houses.

“At one point, developers were focusing on building high-end houses. After they realised that high-end houses were not working for them, they started focusing on low-end houses,” Zia said.

CATCH US ON: