India’s Unsold Housing Stock: How Builders Burden Is Turning Into Buyers Bliss

The huge housing stock lying unsold in India’s major cities is certainly, among several other unpleasant things, giving India’s developers sleepless nights. At the end of the financial year 2018-19 (FY’19), there were over eight lakh such units lying across India’s nine key property markets, data available with PropTiger.com show ─ mind you, this is the lowest level the inventory stock has hit in the past three years.

At the current sales velocity, builders would have to wait for almost two and a half years before they are able to unload this burden – again, this is the lowest inventory overhang seen in the past three years. In the meantime, this unsold stock would be getting older than it already is.

Now, maturity is something that does not reflect positively on housing, at all; as it ages, a property has lesser chances of finding a taker willing to pay its real worth. Aside from the fact that builders run the risk of taking losses on investment as inventory goes old, they have to suffer taxing pains, too.

By inserting Section 23 (5) in the Income-Tax Act in 2018, the Central Board of Direct Taxes (CBDT) made it mandatory for developers to pay tax on the unsold stock based on their notional rental income if the stock is older than one year. In this year’s Interim Budget, however, the government extended the period to two years.

Perturbed by the variety of factors, developers have already been offering sweetening deals to avoid monetary loss of various types. Some may waive stamp duty; others may offer free modular kitchens and fancy gadgets. Some would dazzle you with free gold coins; others would flatter you with a foreign trip.

To a buyer’s delight, real estate has actually turned out to be his market — almost half of the existing unsold housing stock is affordable housing units, to start with.

Desperate developers are all ears as buyers negotiate the terms and conditions worked out to favour the latter more than the former. Since the economy suffered greatly as growth in the country’s second-biggest employment generating sector slowed, the government, too, is busy working out a plan to bring back normalcy—GST rate on affordable housing has been brought down to one per cent; interest rates have touched a record low.  

Barring a few cities rates of property across India’s major cities have also declined in the past five years.

If one was waiting for rates to hit bottom before they invested in property, this makes for a perfection opportunity for them to strike gold.

Also, buying units that are part of unsold stock also means there would be no waiting-and-watching involved. You get the keys to your apartment as soon as you make the payment.

Now, if all this sounds encouraging, would it not be better to know which are the cities where you would get the best of the lot?

For investment’s sake

Data available with PropTiger.com show Hyderabad has the best inventory profile. This means the housing stock in this city is much younger than that in other cities. Of all the housing stock lying here, 31 per cent is only one year old. Another 23 per cent is aged between one and two years.

Easy availability of fresh housing stock could partly be the reason behind the city developers seeing a 26 per cent surge in sales during Q4’19, at a time when overall home sales fell five per cent.

Considering rates of property in this city have consistently been rising, investing in Hyderabad would make perfect sense if you are buying for investment purposes.

A square foot of space in this city would cost you an average Rs 4,900 currently, data show.

To each his own

If age is a concern, Chennai is the place for you to hunt for a house. Data show 39 per cent of unsold units in the city are only one-year-old. However, property in Chennai is comparatively dearer, and costs over Rs 5,000 a square foot.

If age is not much of a concern for you but money is, Noida would be your safest bet. Data show 76 per cent of the unsold housing stock in the city is aged over three years. Because of the negative publicity that this NCR market attracted after several developers were dragged in the insolvency tribunal, builders are under tremendous pressure as far as sales go. A buyer has a lot of scope to bargain a sweet deal in a market such as this.

Also, property in Noida is among the least expensive in comparison with markets of similar potential, something end-users would find highly relaxing.

A square foot of space in this city would cost you an average Rs 3,800 currently, data show.

Those looking for property within Rs 50-lakh bracket would find plenty of options in Ahmedabad, Pune and Kolkata – over 75 per cent of the unsold stock in these cities is within that price range.

Those who are looking for ready-to-move-in options have higher chances of finding their dream homes in Ahmedabad and Chennai, where a large part of the stock is completed units. In Ahmedabad, 29 per cent of the unsold stock is ready-to-move-in units. In Chennai, their share stands at 26 per cent.