Real estate developers across India are sitting on an unsold inventory worth Rs 370,000 crore even as homebuyers defer their purchase decisions due to the evolving COVID-19 pandemic, which has led to sales declining by nearly 30 percent in Q1 2020 on a year-on-year (YoY) basis, a new report has said.
Developers have a locked-in capital of Rs 370,000 crore. The first quarter of 2020 witnessed an increase in unsold inventory as launches outpaced sales by a significant margin. Unsold inventory increased from 442,228 units in Q4 2019 to 455,351 units in Q1 2020.
Moreover, Mumbai surpassed Delhi NCR to become the market with the maximum quantum, as well as value of unsold inventory, says a report by JLL titled India Residential Market Update Q1-2020.
The number of unsold units in Mumbai stood at 124,059 compared to Delhi NCR’s 121,800.
An assessment of years to sell reveals that the expected time to liquidate the stock has increased from 3.2 years in the last quarter of 2019 to 3.3 years in the first quarter of 2020, the report said.
With the anticipated slower sales in the coming quarters, the time to sell is likely to increase. The duration to monetise the existing inventory of 455,000 units is expected to extend. Therefore, the developers will have to sit on the unsold inventory of Rs 370,000 crore for a relatively longer duration, the report said.
Homebuyers’ confidence takes a hit
Owing to the economic slowdown as a result of the current situation, consumer confidence has also taken a hit, which is having a direct implication on the home buying decision process, the report said.
In the aftermath of COVID-19, developers are likely to resort to further price reduction, the report said, adding that the reduction combined with reduced home loan rates is expected to increase affordability in the residential market. Increased affordability, better priced deals will help improve buyer sentiment therefore supporting recovery of the residential real estate market.
Rebound in market to be influenced by intensity, spread and duration of the COVID-19
However, the recovery will hinge on the intensity, spread and duration of the pandemic. If the lockdown gets prolonged, the residential market may face tough times as recovery will be pushed further, the report said.
As for new launches, even though new project launches came to a standstill in March, Q1 2020 witnessed a rise of 3 percent in new launches as compared to the same period last year. Q1 2020 recorded new launches of 40,574 units compared to Q1 2019.
The impact of the ongoing pandemic on business activities has also become more prominent since the beginning of March 2020 in the country, the report said.
Government stimulus measures and monetary policy adjustments by the Reserve Bank of India (RBI) will further mitigate the adverse effects of the pandemic and help steady consumer confidence in the residential property market, according to the report.
“The COVID-19 pandemic is expected to weaken GDP growth, which is expected to fall below 5 percent in FY 19-20 and potentially reach 2008-09 levels in FY 20-21. However, the residential real estate market appears to be at an advantageous position today as compared to 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 & 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.