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Real estate developers sitting on unsold inventory worth Rs 3,70,000 crore as of end-March: JLL report
The Hindu Business Line  |  April 6, 2020

Anil Urs Bengaluru

The first quarter of 2020 witnessed an increase in unsold inventory as launches outpaced sales by a significant margin. Unsold inventory increased from 4,42,228 units in Q4 2019 to 4,55,351 units in Q1 2020. Moreover, Mumbai surpassed Delhi NCR to become the market with the maximum — in terms of both quantum and value — unsold inventory.

 

According to ‘India Real Estate Market Update Q1-2020 — Residential’, released on Friday by JLL India, across the top-seven cities, developers are sitting on unsold inventory worth Rs 3,70,000 crore at the end of March 2020.

 

An assessment of years to sell (YTS) reveals that the expected time to liquidate this stock has increased marginally from 3.2 years in the last quarter of 2019 to 3.3 years in Q1 2020. With anticipated slower sales in the coming quarters, the time to sell is likely to increase significantly.

 

“Thus, the duration to monetise the existing inventory of around 4,55,000 units is expected to extend. Resultantly, developers will have to sit on this unsold inventory worth Rs 3,70,000 crore for a relatively longer duration. Having said this, the RBI’s intervention to provide a three-month moratorium on all term loans by financial institutions will alleviate short-term liquidity concerns and help developers survive in these uncertain times,” the report noted.

 

New launches

 

The current quarter saw a modest increase of 3 per cent in new launches of residential units on a year-on-year basis. The healthy streak in launches in the beginning of the quarter was dampened by the growing concerns of the impact of Covid-19 on the real estate business starting in early March. The market gradually slowed in the beginning of March before it came to a standstill, on account of the nationwide lockdown.

 

Mumbai and Bengaluru continued to dominate new launches and formed nearly 60 per cent of the overall launches during the quarter. The overall increase in new launches was driven by smaller markets like Pune, Kolkata and Chennai. While new launches in Mumbai witnessed a substantial decline of 18 per cent, as compared to the same period last year, it remained largely unchanged in Bengaluru (increase of 3 per cent) and Delhi NCR (decrease of 3 per cent), the report explained.

 

Market waits for stabilisation

 

“The Covid-19 pandemic is expected to weaken GDP growth, which is expected to fall below 5 per cent in FY20 and potentially reach 2008-09 levels in FY21.

 

However, the residential real estate market appears to be at an advantageous position today than during the Global Financial Crisis, led by a series of structural reforms by the government in the past five-to-six years,” said Ramesh Nair, CEO and Country Head, JLL.

 

“When the Covid-19 scenario stabilises, factors such as better-priced deals, enhanced financial health of banks and greater demand from end-users will aid in improving buyer sentiment. Sales are expected to regain some traction towards the end of 2020 supported by the festive season during that period,” he added.

 

Talking about new launches, Samantak Das, Executive Director and Head of Research, REIS, JLL, said, “Launches witnessed a modest 3 per cent increase in Q1 2020 y-o-y, even though businesses came to a grinding halt in March 2020. Home-buyers deferred their purchase decisions in light of the current situation, resulting in an almost 30 per cent y-o-y dip in sales during the first quarter of 2020. With the anticipated slowdown in economic activity, the real estate sector, which contributes 8 per cent to the GDP of the nation, is poised for some immediate challenges.”

 

The crisis is likely to aggravate the liquidity crisis faced by developers and restrict new launch to a minimum even after normal business conditions are restored. In the subsequent quarters, developers are expected to focus on completion of under-construction projects and clearing their unsold inventory. Moreover, consolidation in the residential market, with an increasing number of joint developments, will continue to be a major trend with the size of pie belonging to reputed developers increasing consistently.