About 40-50 months of unsold inventory in realty market: Pankaj Kapoor

In a chat with Now, Pankaj Kapoor, Founder & MD, Liases Foras, says real estate market has seen more of a time correction rather than a price correction. Edited excerpts

What have been your findings the idea of this discussion came about from the fact we saw a couple of weeks ago that there was an interesting note that NCR which was hitherto being dumped as a market because of excessive supply is now starting to see either demand pick up or supply getting narrower which might actually help prices there?
There is a slight improvement in the sales and largely because of new launches in the affordable segment. Wherever the projects are reaching to a completion, we are seeing some tractions at the user end in those projects. So there is a slight improvement but I would say to reach to a level of efficiencies, the market should really improve three or four-fold. It is very marginal improvement. We still have more than 40-50 months of inventory. An efficient market should maintain only 8 to 10 months of inventory. So there is a quite a lot of journey which it has to really go for a market to become sustainable and efficient. The enormous inventory which is lying in the market is close to 350 million square feet of unsold stock and against that the quarterly sales is only 17 or 18 million square feet, far below the optimum level. So, we can say it is on the path of recovery but has a long way to go.

The general Indian home buyer is still of the view that there is unsold inventory but the affordability levels are still very difficult and at least in metros, in Mumbai and Delhi, builders are not ready to bring prices down. They may be desperate for sales but they are not ready to bring the prices down. So who is going to blink first? Do you think the buyer will be forced to pay more money or the builders will be forced to bring the prices down?
If the prices were to come down, they should have come down say two years back and the resilience in the prices is kind of an economic imbroglio like escalating cost, cost of capital, cost of construction plus the land cost. So that has created a floor and if you look at the last two years, the prices have remain stagnant. There is no rise in the secondary market in NCR and in some of these markets which are undeveloped and uninhabitable, we have even seen decline in the prices but in most cases, the prices have shown stagnancy. It is more of a time correction rather than a price correction but during the period of two years, remember the people’s income must have grown as well as interest rates have come down.

So if I take interest adjusted affordability, there is an improvement which has really reduced the gap. In Mumbai market, there is a 26% improvement in the affordability of the people and that is what is translating into some sorts of improvement in the sales but you know there is a one more very interesting analytics I have done.

If I compare a market of 2005 to 2016, in 2005 people were able to buy a flat with a six years of savings. So, the average age of the consumer had come down to 31 years. Today the way the prices escalated in the last 10 years, in order to bring in his own equity, the consumer needs to work close to 16 years and that is where the average age of the consumer has really become 41.

So there is a 10 years increase and that is what has shrunk the markets. If you look at it, there is a 46% decline in the eligible masses who can really go and purchase the property and that is a basic reason during this period that we have seen the supply coming in, we have seen the prices the way it has gone up which has become unproductive it is not getting converted into the sales but having said that last two years I have seen since the prices have stopped going up I see the gap is reducing and in my own sense is one-one and a half year further I will see there would not be much of the increase in the prices this will remain at the same level and that is how the market will attain its own efficiency the gap between the prices and affordability will get reduced and the sales will start improving going forward.

Credits ET Realty

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