India’s Property Market Paradox: Unsold Apartments, Crisis For Common Man

Slum Developer Omkar Realtors & Developers Pvt. Managing Director Babulal Varma Portraits And Views Of The Company's Cresent Bay Development
MUMBAI — India’s property developers are facing the heat. Their debts are high, and they are offering discounts, free parking spots and gifts like gold coins and iPhones to sell apartments says a Reuters report.

Normally, such a market should mean buying a house is easier than before, as property rates plunge with excess supply. But for most Indians, that has not happened.

The answer to this puzzle is that most of such unsold homes are expensive, located in upscale societies and in cities like Delhi and Mumbai, where residential property prices more than doubled from 2009 to 2012. Instead of cheaper housing, most developers built apartments that cost over Rs 1 crore on average, as these include a hefty margin and are targeted at richer buyers. But the average Indian cannot afford them. Their demand is in a far lower range of Rs 5 lakh to Rs 20 lakh. So while apartments remain empty, India’s middle class is faced with a housing crisis for a lack of affordable housing.

At the premium end, its a buyer’s market. It is taking four and a half years for developers to turn property into cash, a year longer than in China. Developers are desperate to sell the property, and existing owners are not seeing a rise in prices of properties they own. Unsold inventory of leading Mumbai developers alone now stands at $8.5 billion. And that does not include projects in the pipeline. Such a large backlog might take over a decade to clear, and buyers can expect further discounts and incentives from builders.

Developers take huge loans to finance such projects and the slowdown has also affected banks, which are less inclined as a result to pass on rate cuts to customers fearing some of these loans will go bad. Despite offers of gold coins and iPhones, and even motorbikes, demand has remained flat.

In contrast, demand for affordable housing has risen sharply, and supply shortage is close to 19 million homes. This is where the bulk of India’s housing needs to happen, and the government has allocated more funds as it targets a home for everyone by 2022. Given the massive shortage, this does seem to be an ambitious target. Developers are more inclined to build fancy homes, not cheaper houses. For most Indians the reality is stark: property prices are increasingly over their budget, and it is harder than ever to own a house.

“On one side, there’s a housing shortage and on another you have rising inventory and thats a very big paradox,” said Pankaj Kapoor, Chief executive of Liases Foras, a real estate rating and research firm.
Source (With inputs from Reuters)

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