Mumbai Builders Sitting On Piles Of Unsold Flats, Hoping The Laws Of Economics Don’t Matter

Despite the serious drop in buyer interest, realtors seem to be living in a fool’s paradise where they expect sales to happen despite unaffordable prices.

The latest figures for the Mumbai Metropolitan Region (MMR) show that unsold inventory is building up relentlessly, with property consultancy Liases Foras estimating total inventory at around Rs 2,50,000 crore, with another 1,00,000 homes finding no takers in 2016-17.

Thanks to the notification of the Real Estate Regulation Act (RERA), and a weak economy in which incomes are growing slowly, the ordinary home buyer expects prices to fall in the near term.

With the government now providing huge interest subventions for affordable housing, and builders of such housing entitled to 100 per cent tax-free profits, demand will shift to lower-cost houses, which will put further pressure on unsold inventories in major cities.

The 2016-17 budget made all profits on affordable housing projects started before 2019 tax-free. And, on 31 December 2016, Prime Minister Narendra Modi announced that loans upto Rs 9 lakh for those earning Rs 6-12 lakh per annum will be subsidised by 4 per cent, and loans upto Rs 12 lakh for those in the Rs 12-18 lakh income bracket will get a 3 per cent discount.

These sops will fundamentally broadbase the housing market over the next five years, and builders nursing large unsold inventories of houses costing Rs 1 crore and above will struggle to sell them.

The Liases Foras data show that between 2014-15 and 2015-16, unsold units across projects in the Mumbai Metropolitan Region rose 34 per cent from 1,68,882 units to 2,25,900. This inventory rose again by 16 per cent to 2,61,382 units in 2016-16.

In contrast, sales were far behind inventories. In 2015-16, sales across projects rose 7.3 per cent to 47,119 units, and last year they rose by 17 per cent to 55,315 units.

Put another way, the inventory of unsold units is rising faster than sales, and inventory levels will take five years to clear at current sales trends.

Anyone with a smattering of common sense would conclude that steep discounts are vital to get the inventories down, but the real estate industry apparently thinks it can wait out the downturn in demand.

It is probably indulging in a fantasy. The revival, if any, will happen in affordable housing. And the more affordable housing takes off, demand for high-priced inventory will taper off.

It will work only if the laws of economics are suspended in MMR.