Laggard past becomes saviour of Indian Realty post pandemic

Ashish Kulshrestha | The Clear Picture

The slowdown in the Indian Residential Real Estate industry caused on the back of the Global Financial Crisis of 2008 has come as a saviour for the industry in 2022, providing shoots of green and an edge over global markets. This phenomenon is primarily caused by the presence of huge unsold inventory coupled with decadal low home loan interest rates which has contained any price rise in India as demand rises, unlike global markets where the surge in demand has been accompanied by a spike in prices, resulting in fears of the forming of a housing bubble.

According to Knight Frank India Real Estate Residential and Office Market 2021 report, India’s unsold residential real estate inventory in 2021 stood at around 4.4 lakh units for top 8 cities which would ideally take nearly 2.5 years (10 quarters) years to be cleared. The unsold inventory count stood at 7 lakh units in 2014.

In addition to this, the home loan interest rates have been at its lowest in last decade starting at 6.4%, propelling a rise in the demand for housing.

“Globally, the housing boom has been accompanied by a sharp rise in housing prices, resulting in fears of the forming of a housing bubble. In India, however, the housing sales surge has not been accompanied by rising prices so far. Housing prices in India, having fallen in the last few years, stabilized in the last few months,” the report said.

JC Sharma, Vice-Chairman and Managing Director, Shobha Limited said, “We do not believe that the price rise per se is inevitable. It does not mean it is going to happen overnight, but as the old inventory starts getting replaced with the new inventory, you will be seeing on the new inventory higher price realization than what it used to be”. He shared this as part of the FY222 Q2 investor concalls.

As of September 2021, Sobha has an unsold inventory of 14.92 (lakh) square feet in their ongoing projects whereas it has an unsolved completed inventory of 0.44 million feet valued at 3.35 billion in the same time period.

Pirojsha Godrej, Managing Director, Godrej Industries, said, “We have roughly about one year’s worth of sales available for preferential sale, so I think that's a healthy level to look at. He was responding to a query during the company’s investor concall for the FY22 Q2 results ending September 2021.

This combination of high unsold inventory with low interest rates is also going to make the industry more attractive for global investors. The government has also set up the SWAMIH (Special Window for Affordable & Mid-Income Housing) fund to help in funding stuck projects in the affordable housing segment.

However, the uptick in demand due to the pandemic is likely to reduce the unsold inventory to healthy levels, resulting in price hikes.

Sharma says, “The demand for products and the sales velocity seems to be greater than the new supply coming in the market and coupled with the increase in the salaries especially in the IT sector and the low interest rates vis-àvis the cost can input pressure, it looks quite likely that going forward the price rise will be there and in two to three years time definitely about 25% to 30% increase in my view can be expected from the current level as far as the sales prices are concerned in my view”.