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Piling inventory, poor sales may force builders to slash rates, say experts

September 25, 2013 | By

With real estate inventory at an all-time high, severe liquidity crunch and decelerating sales, experts feel that developers will be forced to slash residential property rates in the coming months.

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A recent report by real estate consulting firm, Cushman & Wakefield, pegged new launches at around 18,000 units during the first half of 2013, an increase of 30 per cent compared with the first half of 2012. “The share of the high-end segment in new launches has increased substantially despite stagnant demand levels in the city. The subdued sales activity has prompted developers to resort to reducing configurations to reduce ticket size and offer subvention schemes to boost sales,” said Shveta Jain, executive director (residential services), Cushman & Wakefield.

With the real estate companies in poor financial health, experts predict softening of prices owing to lack of options to augment liquidity. The ‘stress level’ of these companies — reflected in their low operating cash flows and huge debt — is at its highest in the past five years, according to real estate consulting firm Knight Frank.

“The developers have been caught in a trap of ambitious expansion, decelerating sale, hardening interest rate, and weakening cash flow. With few options to obtain money from either banks or private equity funding, these companies do not have much choice but to soften prices,” said Samantak Das, chief economist & director (research), Knight Frank. He said rates are bound to be cut by 10-15 per cent.

Real estate research and rating firm Liases Foras says unsold inventory in six major cities adds up to about 5.39 lakh units — an all time high. “The city’s inventory will take up to 40 months to clear at the current pace of absorption, while a healthy market does not maintain more than 10 months’ inventory,” said Pankaj Kapoor from Liases Foras.

Experts point out that if not directly, developers are indirectly doling out freebies and flat discounts on the pretext of the festive season. Firms such as Mantri Developers, Omkar Realtors & Developers recently announced free gold coins for home buyers, while others are offering fancy products, modular kitchens and ACs in flats.

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