Why Smaller Cities Too Are Burdened Under Huge Pile Of Inventory?


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    India is sitting on a massive pile of real estate inventory. As per a recent report by Liases Foras, over 12.76 lakh houses are lying unsold in India’s top 30 cities.

    With some 11.9 lakh inventory recorded in FY2018, the unsold inventory has increased by 8 percent Y-O-Y. Interestingly, the problem of high inventory does not seem to pertain to any specific region but is a pan-India problem.

    Chennai has a mammoth inventory of some 72 months which simply implies that it will take between five and seven years for developers in these cities to get rid of the present housing stock if no other new projects are launched.

    Out of 12.76 lakh of unsold inventory, the top eight cities, including Mumbai Metropolitan Region, National Capital Region, Bengaluru, Hyderabad, Chennai and Pune alone account for 9.66 lakh unsold houses.

    In other words, it will take approximately 42 months to sell of all the unsold houses in whole India. The gravity of the situation can be better understood by the fact that inventory of 8-11 months is considered healthy and efficient. Comparing the numbers with the Indian real estate statistics, it is clear that sales need to improve almost four times so that the current pile of inventory starts moving and clearing up.

    Surprisingly, the scenario is worse in small cities like Kochi, Jaipur and Lucknow. While Kochi has an inventory as high as 80 months, Jaipur and Lucknow are sitting on inventory worth 59 months and 55 months respectively.

    “A lot of developers went there in anticipation of industries shifting there,” Business Today quoted Siva Krishnan, Head-Residential Services, Developer Solutions and Strategic Consulting, JLL India, as saying. “That transition has not happened. There is not enough traction in employment as these cities have failed to generate the demand that was envisaged.”

    Some of the reasons of high inventory level in small cities are:

    ·       Unexpected High Price:

    Despite being non-metro place, cities like Kochi, Jaipur and Nasik has sky high property prices. Like, average price in Jaipur was Rs 3230 per sq. ft. in the fourth fiscal quarter and Rs 3969 per sq. ft in Nashik, which is just 17 per cent less than Rs 4645 per sq. ft. prevailing in NCR.

    In fact, property rate in Kochi (Rs. 5340 per sq ft) is more than both NCR and Pune (Rs 5230 per sq ft).

     ·       Over Supply:

    Developers went overboard with supply in 2011 and 2012 when the Indian real estate was at its peak. Investors created an artificial demand which led to more and more robust supply. In turn, many developers headed to smaller cities thinking that demand will see a shift in future.

     ·       Affordability and Relevance:

    Before the real estate slowdown, anything and everything was selling in real estate. Investors were buying and selling ferociously while builders continued on land buying spree to bring more and more projects. Cut to 2019, a project will sell only if it is relevant, affordable and connected to the main city with basic and proper infrastructure in place.

     ·       Demonetization:

    2016 demonetization sucked liquidity out of Indian real estate which put a brake on purchases by customers as well as dried out funds for developers.


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