According to some real estate consultants, worse is yet to come for residential realty sector in the country. According to them, stress in the residential real estate has intensified in the past few months and could lead to further price decline in many of the projects across key cities.
Sales even after increasing by 5.3% on year on year basis in 2019 calendar year are lower by 27% relative to peak in CY2014. Further worrying aspect is the high unsold inventory which as of end CY2019 was 2.5 times the sales in CY2019. If one includes the stressed assets too (excluding projects in NCLT) the total inventory is 4 times the CY2019 sales. With builders shifting focus to affordable and budget housing, that segment is now showing signs of oversupply. It’s believed that that for the affordable housing to be profitable for the developer, the sales momentum should be very strong. However, the combined impact of weak buyer sentiment, difficulty in getting home loans by the existing buyer and the closure of the subvention scheme has led to slow sales, resulting in build up of inventory in the affordable housing space.
Some analysts point out that on an overall basis, prices have increased by only 8% during CY2014-19 while prices of many projects have declined by 20-30% in the past few years. To some extent the price decline had been relatively low due to financiers to the developer and buyer also resisting the price decline as it could impact the collateral value on the books of the lender. According to them, there is an increasing probability of further sharp price decline.
It should be noted that the most of the existing projects have been made on high cost land bank. Also, with weak pricing scenario, many of the early buyers are also selling, implying that the developers are grappling with secondary sales at lower prices. All these factors have led to increasing cash flow stress on the developers.