High inventory may lead to price cuts

High inventory may lead to price cuts

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According to an independent study, housing inventory units in five major cities have either come down or remained stagnant in absolute terms in the first nine months of the current financial year. While the inventory level of around 12-24 months is considered to be healthy, the current inventory level ranging between 41-86 in the five cities, namely, Mumbai, Gurgaon, Bengaluru, Chennai and Pune, appear to be a precursor to price cuts.

High inventory overhang, low investor demand and stagnant pricing continue to be key impediments for recovery in demand. Inventory levels in the five cities have largely stagnated (in absolute terms) over the last 3 years, while rapidly declining sales have elevated inventory months to all-time highs.

Inventory months across all key cities are above 40 months, meaning it requires 3.5 years to clear the existing inventory at the current rate. While Gurgaon has the highest inventory level of 86 months, Mumbai comes next in the list with inventory level of 72 months. Strict RERA rules have kept the new launches at lower level which in turn has provided a breather to the high inventory buildup.

Residential property prices across the five metros have remained largely stagnant over the last 2 years as demand has weakened considerably. Only Gurgaon witnessed a correction in prices during the last 12 months. Most of the developers likely to see cash flow constraints which may affect their future launches. One positive, however, of this is, it will slowdown inventory build up in the coming months.