As more industries report a slowdown, real estate goes from bad to worse

Close to 1.30 lakh homes were sold in the first six months of 2019 – but unsold inventory levels are thrice that number, at over 4.50 lakh. What makes things worse is that the average age of these houses is 3 years old – which makes them harder to sell. At current prices and demand trends, it would take over two years to just get rid of all this inventory, without any builder launching even a single project.

But unfortunately, the problems of real estate go beyond just supply and demand – liquidity is a major concern as well. A JLL India report shows that NBFC funding to real estate has nearly halved – going from Rs 52,000 crore in FY18 to Rs 27,000 crore in FY19. The number of fresh loans given to builders was around 1,500 in 2017 – and so far this year, it’s only at 250. With a supply glut, it wouldn’t be the worst thing to not have new launches, right? Well, that’s only part of the problem – Anarock Property Consultants estimates that 1.74 lakh houses worth over Rs 1.7 lakh crore are stalled because of liquidity issues or legal tussles.

What’s more, 66 percent or two-thirds of those homes are sold – which means those many families are simply waiting to take possession of houses that may never see completion. And that trust deficit also makes it difficult for potential homebuyers to put their money into under-construction apartments – which is the basis of the entire real estate business model in the country.

One last data point – on the industry itself. PropEquity estimates that the number of builders in India’s top 9 markets has halved between 2012 and 2018 – going from 3,500 to 1,700. Real estate experts have said that the post-IL&FS consolidation has been worse than post-demonetisation or post-RERA, which means that this number may actually be much lower already. And while this is good for the handful of developers with strong balance sheets, it doesn’t augur too well for homebuyers who may be forced into paying a premium to ensure they get possession on time.

The media has been accused of overplaying the slowdown card, so let’s try and be optimistic for a second. Commercial real estate is doing well, with many cities recording record transaction volumes and values this year. New asset classes like data centres will grow faster as more types of data become confined to India’s geographical boundaries. But residential real estate looks bleak at best for now, and there are no signs that it’s going to get much better any time soon.