Real estate sector betting on affordable housing to push sales

The overall unsold inventory is around 7.79 lakh units, of which 3.93 lakh units, or roughly 51%, is affordable.

Even as the real estate sector grapples with liquidity crunch and overall subdued business sentiment, the industry is betting on the affordable housing segment to push sales and reduce inventory pile-up in the next six-nine months. More than 4 lakh units, of which around half will be affordable, are expected to be delivered by March 2020.

A report by real estate advisory PropTiger.com estimates that more than 4.5 lakh affordable housing units are likely to be delivered in the next 15 months.

The report by PropTiger.com, a part of Elara Technologies which owns Housing.com and Makaan.com, expects the country’s nine major property markets to see delivery of around 7.95 lakh units between October 2019 and December 2020. Of this, over 3.1 lakh units are set to enter during October-December 2019, while 4.83 lakh units would be delivered through the course of 2020.

But analysts and market watchers have raised apprehensions about the inventory build-up in the affordable housing category. They are of the view that the sector already has a huge pile up, which is almost half of the total unsold inventory, and adding more units to this number, despite the uptick in sales in this segment, could adversely impact the sector.

The overall unsold inventory is around 7.79 lakh units, of which 3.93 lakh units, or roughly 51%, is affordable. In affordable, around 2.04 lakh units (26.2% of total unsold stock) is in the less than Rs 25 lakh category, while another 1.89 lakh (24.3%) is in the Rs 25-45 lakh category.

However, Elara Technologies chief operating officer Mani Rangarajan believes that inventory overhang would decline in the next six-nine months. The unsold stock in top nine cities maintained its lowest level of 7.79 lakh units in past 13 quarters during Q2 FY20. This is also the lowest in three years. Overall inventory overhang has reduced to 28 months compared to 34 months in same quarter of previous year, he noted.

Speaking to FE on inventory pile up impacting affordable housing, Rangarajan said, “I don’t think so. What we are seeing over the last couple of years is that sales in affordable segment are pretty good.”

For instance, he said, during July-September in Mumbai more than 30% of sales came from less than Rs 25 lakh segment. And if the definition of affordable housing is extended to flats worth Rs 50 lakh, then about 50% of sales are happening in this price category. The same is the case of Pune, where 30% is within Rs 25 lakh and 60% sales are coming from the below Rs 25 lakh and Rs 25-45 lakh segments combined.

Another example is of Bengaluru, which did not have too many products in below Rs 25 lakh category, but during a recent visit there several developers evinced strong interest in venturing into the below Rs 25 lakh segment.
On the sector’s outlook for next two quarters, Rangarajan said, “I think the market continues to be stressed owing to liquidity issues with developers. The government is creating a stress fund and is also looking at liquidity issues with NBFCs. But I think that over the next six months, sales would be likely higher compared to Q2 FY19. In Q3, I expect sales to pick up given the festival season. In Q4 2019 normally towards the year-end, we will see some pick up. While there are going to be launches in every city, I don’t think they will grow as compared to last year.”

He further noted, “The good thing is that with launches slowing down, I see most developers concentrating on completing projects. Consequently, more ready-to-move-in inventory will come and sales in this are far higher than under construction ones. Inventory overhang will continue to reduce from 28 months now. So we might see a reduction by around 10% Y-o-Y.”