According to a recent report by Moody’s Investors Service, “Cash flows (in real estate sector) will remain weak, sales will remain low, project launches will remain muted and prices will remain largely stagnant, in the next 12 months.”
“The slow offtake amid subdued demand has led to a significant increase in unsold inventory across markets, which prevents developers from raising prices and results in lower sales volumes and cash flows,” said the Moody’s report.
Other industry participants agree with the above. A recent study by Jones Lang LaSalle India stated that “Bengaluru has the second-highest unsold inventory among Indian cities, where the number of unsold housing units stood at around 84,000 in the second quarter of 2015. The city has surpassed Mumbai in the unsold inventory segment,”
Bangalore being at the top of the list of cities with high unsold inventory reflects that end-users are finding it difficult to buy. The main reason being unaffordable prices. “Sales volumes will remain weak because housing prices are unaffordable for many consumers,” said the Moody’s report.
“Instead of reducing prices to drive sales, developers will likely continue to modify their products and offer promotions,” stated the Moody’s report.
“We have seen that average apartment sizes reduce by 25% to make the ticket size more affordable and attractive to match demand along with multiple payment schemes, freebies, extra space within the same cost and so on,” said Arvind Kapoor, director, India operations-residential, Colliers India.
Another reason end-users as well as investors are not buying is because of project delays, which has now gone beyond three to four years in many cases. “Given companies’ stretched cash flow positions, we expect the execution delays to persist,” said the Moody’s report.
Low sales and piling inventory will only put further pressure on project launches, which has already dropped by more than 50% in recent times. Experts said that developers, instead of launching new projects, are now focusing on clearing existing stock.
Regulatory issues are also keeping many home buyers away from the real estate market. People state that the Real Estate Regulator, as proposed by Real Estate (Regulation and Development) Bill, 2013, will bring in much needed transparency into the unregulated real estate market. “A regulator will make a big difference in the real estate sector. It will surely have a large impact on tier 1 markets initially, and then create a standardized framework for other regions to follow same suit,” said Kapoor. However, while the real estate Bill is in favour of the end-user, its stipulations regarding stricter receipts and use of cash advances may affect developers’ cash flow.
Buyer’s beware! And choose ready to move in flats or projects nearing completion i.e. construction to end by another 6-8 months.