The real estate rollercoaster

From grappling with rising inventory, the market now has swung to the opposite extreme, but reasons for the euphoria are unclear

Real estate has been a story of stress and trouble for many years in India. Of course, there have been large deals and regulatory advancements along the way, but the overall commentary has revolved around piled-up inventory, unsold flats, high debt of realtors, consumer activism, litigation, and developers falling by the wayside. The image of Noida’s Supertech tower being brought down in a spectacle of sorts in 2022 will probably remain among the most striking memories of Indian real estate gone wrong. And in an industry where corruption is no stranger, Unitech’s downfall and its promoters being sent to jail on charges including money laundering, will perhaps serve as a reminder to businesses for a long time on how fragile success can be.

In terms of numbers, out of some 2,000 corporate insolvency resolution processes, more than 430 cases were from the real estate sector last year. The pandemic-induced lack of demand was cited as the primary reason. Another set of numbers showed unsold inventory of housing units. Exactly one year ago, developers had an unsold inventory of around 785,000 units across eight major cities. PropTiger, a real estate advisory firm, said in October 2022 that developers were going to take 32 months to clear these stocks. The projection also indicated that in the Delhi-NCR market, about 62 months would be needed to sell over 100,000 unsold units it had at that time.

What has changed from then to now for the property market to adopt a bullish flavour? The reasons are somewhat hazy, except that builders (mostly the bigger more reputed ones) are able to sell houses and plots very quickly, prices are appreciating at a pace not seen in about a decade, and there’s money flowing into the system. Not surprisingly, an otherwise routine house sales report by real estate consultancy Anarock made people sit up. It said home sales in the top seven cities of India reached an all-time high of 120,280 units between July and September 2023 — a 36 per cent increase from 88,230 units in the same period last year. Since the monsoon months are usually slower in the real estate market, these numbers have remained in the headlines, showing the property market has regained its mojo.

Add to that the 11 per cent increase in home prices during that time period across the same seven cities. If this points towards robust demand, it is worth noting even the supply was up 24 per cent, from 93,940 new unit launches in July-September 2022 to 116,220 during the same period this year. Another important data point capturing an uptick is that both “affordable” and “luxury” segments have seen higher sales. A recent report from Knight Frank even went on to say that the sale of luxury homes (over Rs 1 crore) crossed that of affordable homes (below Rs 50 lakh) for the first time in India during the July to September quarter, pointing to big deals involving big bucks.

There are heady examples, some anecdotal: A large NCR-based developer was able to sell all the flats in a high-end gated society a few months ago in just three days. Estimates suggest a potential three-fold rise in property prices in two to three years in some of the big cities in India. Investors are said to be returning, as opposed to an end-users’ market in the last few years as real estate returns have zoomed. And as an insider pointed out, there’s FOMO (fear of missing out) amid visible returns.

However, in the excitement of positive trends, worrying data often gets sidetracked. For instance, the existing inventory of homes only declined 3 per cent year on year. According to reports, the inventory level, which was at 630,000 in July to September 2022, is now at 610,000. Property market analysts don’t see a mismatch between the high sales and high inventory. Inventory is not going down because a large majority of the piled up units are either not ready yet or not given out for delivery. That, in turn, is linked to the high level of insolvency and litigation cases in the sector. In this backdrop, how does one explain the large-scale new unit launches? If the new launches, cited by consulting firms, are mostly from the bigger builders that buyers are putting their trust in, it may not be too worrisome. But when launches hit a high, a mix of big, medium and small builders could be at play. There’s no detailed list so far on who’s launched what and where.

In the last few years, we have seen multiple instances of default, leaving the homebuyer with a raw deal. The regulatory changes such as the Real Estate (Regulation and Development) Act may have brought some transparency and accountability to the property market, but brokers and analysts admit there are still ways to game the system. In that background, the present exuberant numbers—whether it’s about home sales, prices or new launches—should be seen in the right context. This ensures that nobody drops the guard against unscrupulous builders and the homebuyer is not taken for granted once again, especially ahead of festivals and elections as both could impact real estate activity.