Realty recovery unlikely this year

The latest Financial Stability Report of the Reserve Bank of India (RBI) hints at a gradual improvement in the house sale-to-unsold inventory ratio in the first half of the current fiscal, but builders and consultants say a turnover in the real estate sector was still some time away.

They believe the sale-to-unsold inventory ratio picture is looking better only because of dwindling new launches.

Samir Jasuja, founder & CEO of PropEquity, attributed the better sale-to-unsold inventory ratio to a slump in new launches, which were down about 90% across India since 2017.

He also said today's sales-to-unsold inventory ratio looks rosier than the last year because of some pick-up in the sales of ready-to-move-in houses. According to him, sales of under-construction houses continued to be subdued.

"The ground reality is that new launches have come down by 90% from 2017 onwards. That is why the sales-inventory ratio is improving. But having said that sales ratio is improving mostly of projects that are ready and not of projects under construction. A lot of inventory have started to get ready which was unsold. They have started to sell because they got ready and there was no execution risk. But it is because new launches have come down so much that your inventory has started to drop," said Jasuja.

He expected the current "pain" in the sector to continue for another year or two. "We see the pain lasting for at least one-and-a-half to two years. We believe 2019 is going to be similar to what happened in 2018. Sales of ready stock are going to be down 20% from the peak. We are already down 70%. It's going to stay like that. The two years (2018 and 2019) are going to be very similar," he said.

The RBI's financial stability report, released on December 31 last year, noted that the prices of houses have been "cooling" in the last five quarters "despite accelerated housing credit growth and favourable bank lending rates".

As per its data, the year-on-year (YoY) growth in housing price index (HPI) was 5.3% in the first quarter of FY19. During the same period, the housing credit grew by 15.8%.

Commenting on the RBI's findings on the housing sector, J C Sharma, vice chairman and managing director of Sobha Ltd, said, "I will concur with that (RBI's finding) but it doesn't mean the overall environment has improved. When you look at new launches, they have been reduced significantly in the last couple of years. The big picture is that the new launches, in my view, have come down by at least 30%. If you look at last two-year average versus prior two-year average, there has been a significant fall in the new launches, he said.

Even RBI says the recent spike was mainly due to government's affordable housing schemes.

"Notwithstanding improved consumer sentiments consequent to stabilisation of disruptions in the implementation of GST and RERA, the recent spike in launches is mostly driven by government schemes to promote affordable housing," the FSR said.

Sobha's Sharma feels the consumer sentiment was still not "satisfactory" and expected supply to shrink till the point it falls below the demand to trigger higher sales velocity.

"The overall consumer sentiment is still not fully satisfactory. But if you look at it on a year-on-year basis, then 2016 was very bad because of demonetisation. After that 2017 was also bad, but it was better than 2016 and then 2018 was better than 2017 and 2019 should be significantly better than 2018. As supply is shrinking there'll come a point where suddenly you will find (sales) velocity also," said the Bangalore-based developer.

Recent data put out by 99 acres.com, an online house search portal, showed the unsold inventory across metros had fallen to 4.4 lakh in the second quarter – July to September – of the current fiscal from 8 lakh during the same period last year.

Jasuja said it was the category B developers, facing funding problems, who would struggle to complete their projects and hence may not see brisk sales in 2019 too.

"I put real estate in three buckets. First bucket is of ready properties, which have got ready over a period of time. That bucket is out of wood. Whatever gets ready does see improved sales, but the under-construction properties are still to be completed. This is a very large number, especially of category B developers. Those real estate and apartment projects are very badly stuck. They are going to be worse affected by NBFC (non-banking and financial companies) crisis. They might not be able to complete the projects because of the crisis. The third bucket is of launches by reputed developers. Those projects are doing well," he summed up.

According to him, affordable housing projects backed by the government were also doing "reasonable well".

"The Haryana government came out with a scheme that you have to make affordable homes at Rs 4,000 per square feet. You cannot sell them for more than that. Those projects are doing very well. The demand for those projects are good," he said.

CRUMBLING FORTUNES

• 90% – drop in new launches since 2017
   
• 20% – drop in sales of ready stock from peak this year, says PropEquity
   
• 4.4 lakh units – unsold inventory across metros in Q2, a drop from 8 lakh unit a year ago
   
• 5.3% – year on year growth in housing price index in Q1 of this fiscal
   
• 15.3% – growth in housing credit during Q1