Unsold Inventory Is A Symptomatic, Not The Causes, But Housing Industry’s Problems.
Why does India have unsold inventory when there is such a severe housing shortage? We look at the causes. Isn’t it strange that housing oversupply in India’s major cities is keeping developers on edge in a country where housing shortage is at the centre of policy discussions? In actuality, there is an even larger degree of imbalance cause by unsold housing units than by the housing shortage. Unsold inventory, however, is only a symptom and not the root of the nation’s housing market’s ills.
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More than 30 million housing units are lacking in India’s cities. However, just in the top 10 cities, there are almost 7 lakh units of unsold inventory. When one takes into account the 30 major cities in the nation, this number doubles. Two lakh to 2.5 lakh units have not been sold annually in the Indian housing sector. The amount of new releases each year is another factor that contributes to the confusion in the housing market. Where the unsold inventory is always the dominant reality.
This prompts the following fundamental inquiries:
- What causes the housing units in the Indian market to remain unsold?
- Is there more of a slowdown in the economy or are corporate projections flawed by nature?
- What led to the imbalance between supply and demand in the housing market?
- Should fewer fresh releases be made in order to keep the supply and demand balance?
Reasons for the mismatch between supply and demand in Indian real estate
Reality on the ground suggests that unsold inventory is more of a developer self-inflicted hurt. High home demand and even larger standing inventory strongly imply a mismatch between supply and demand. Developers have prioritized taking advantage of the maximum permitted FAR and density regulations rather than focusing on market demand and meeting it. As a result, the market for 1.5- to 2-bedroom homes is oversaturate with 3 and 4-bedroom options.
There are other developers that miscalculated the cities’ capacity for horizontal growth and wound up with a large amount of inventory near the edges of the metropolis. Many ghost cities are still vacant today because they lack social and economic infrastructure.
The housing market has been slowing down recently. This was spark by several factors. While the bulk of demand was for homes in the inexpensive to mid-range price range, developers concentrated on launching units in the mid to high-end segment. Due to a mismatch in affordability, the market experienced large levels of unsold inventory. The housing market was disjoint and opaque before the RERA went into effect in 2016. Homebuyers frequently experienced lengthy delays in taking possession of their homes, with few options for legal recourse. Homebuyers become hesitant to deal with less well-known developers as a result. Additionally, the housing market continued to slow down as a result of demonetization. As a result, home buyers adopted a wait-and-see strategy, anticipating a decline in property prices.
The impact of input costs and property prices on unsold inventory
Similar to this, some developers have experienced excessive input costs, which have limited their freedom with regard to real estate prices. The market became stagnant as a result of these issues. Many people ultimately held the merchandise longer than they could have.
The Indians’ reluctance to invest in more properties has traditionally been fuel by low rental yields, typically in the area of 2%. Indians chose real estate as the finest asset class to park their money till there was double-digit capital appreciation. The Indians were hesitant to invest in more than one home due to the slow rate of appreciation (to the point of inflation-adjusted depreciation).
Of course, affordability continues to be the biggest factor contributing to the nation’s housing inventory being unsold. In terms of economics, the golden rule for buying a home is that it shouldn’t cost more than five years’ worth of gross income. The EMI should not be more than 50% of one’s take-home pay is the second concurrent requirement. According to a different school of finance, the EMI for the given house over the next 20 years should be the same as or less than the rent for the same house over the same time period. Even in India’s top 10 cities, the vast majority of people would never be able to purchase a home under this affordability test.
Is Indian real estate making a comeback?
Unsold housing inventory is cause by a variety of variables, not just the economy’s slowdown or the imbalance between supply and demand. That the other elements, such as property-related legal concerns, an inappropriate location, excessive pricing, etc. May also have an effect on home sales. “India’s real estate market, which was recovering from the epidemic. Has recently encountered unforeseen current occurrences that appear to be slowing the sector’s rate of expansion. It is clear that sales throughout the residential segment have not been significantly hindered when taking into account some recent research reports on residential sales. As well as our internal customer data showing a consistent growth in home purchase over the past six months. This is due to the fact that there are homes available in all price ranges. People want to own homes, and they have more disposable income.
Are developers in tune with the needs of customers?
The market was further impacts by the corona virus epidemic. Because buyers were reluctant to acquire a home during a period of unpredictability.
There hasn’t really been much innovation in design, layout, or strategy since the pandemic that would indicate developers are now more aware of home consumers’ preferences and wants. Launches are frequently out of step with the market in terms of ticket prices, aesthetics, amenities, and other factors.
Should fewer fresh launches be made to keep the balance between supply and demand? Most analysts don’t believe that cutting back on new launches will be an effective way to balance the supply and demand for housing. Demand for homes is highly subjective, and there may be a variety of reasons why a buyer prefers one property over another.
In a nutshell, the market is basically characterize in terms of an individual’s capacity to pay for the goods and services that are offered. The unsold inventory blatantly indicates that the fundamentals of the housing market are in a different position.
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