Top builders sitting on Rs 58,000 cr inventory
Nearly a third accounted for by DLF alone; HDIL's share 20%
Sep 23, 2013
Source : Business Standard


MUMBAI:India’s top builders seem to be sitting on a huge unsold real estate inventory, worth nearly Rs 58,000 crore, which could take more than two years to sell, a Business Standard analysis of 19 listed realty firms on the BSE-500 index shows.

At the end of March, the combined unsold inventory of these companies rose 25 per cent from a year earlier. Their net sales remained almost flat during the same period (see chart).

Of the Rs 58,000-crore pile-up, DLF, India’s largest real estate developer, accounted for almost a third. As of March-end, the Delhi-based company reported an inventory worth Rs 17,600 crore, 18 per cent more than that two years earlier. The company’s consolidated net sales declined from Rs 9,561 crore to Rs 7,773 crore during this period. Following DLF is HDIL, which reported an inventory of Rs 12,043 crore at the end of March this year, more than six times its net sales last financial year.

Third on the list is Indiabulls Real Estate, with an unsold inventory worth Rs 5,111 crore, nearly four times its 2012-13 net sales.

The situation might look even grimmer if the figures for unfinished projects or those under construction (capital work in progress) were to be included. At March-end, the 19 firms in the sample reported Rs 12,300 crore of capital work in progress (see chart).

For the entire sector, the unsold inventory could be many times more, as a majority of developers are not listed. Delhi and the National Capital Region (NCR), for instance, have a little more than 400 builders but only four of those are listed and part of the sample here. In Mumbai, there are around 140,000 unsold apartments priced at an average Rs 1.2 crore each, according to estimates.


The current inventory level is much higher than the optimal eight to 10 months. “Builders need to maintain some inventory to maximise their price realisation. But if that exceeds 12 months, they are forced to borrow to fund their operating expenses. If not unchecked, it could start a spiral of inventory and borrowings,” says Pankaj Kapoor, founder & managing director of real estate consultancy Liases Foras.

This explains the close correspondence between inventory and borrowings in the industry. At the end of the last financial year, the companies in the sample were sitting on combined borrowings of over Rs 51,000 crore.

With the interest rate rising, liquidity drying up and sales slowing, developers could be in for tough times, as they might be forced to generate liquidity, especially in Delhi-NCR and the Mumbai Metropolitan Region (MMR). Industry trackers attribute this to a combination of high real estate prices and poor economic growth.

“Inventory is growing because sales have slowed down. Following a price correction after the 2008 crisis, sales picked up. However, builders escalated the prices nearly 100 per cent by 2010, pulling down the offtake of new properties,” says Kapoor.

He estimates that the inventory in Mumbai could take nearly four years to sell out at the current absorption rate. The only way forward for builders now is to cut prices and create demand. “Price correction is imminent. It has started in NCR and now the trend is creeping into MMR,” he adds.

Sanjay Dutt, Cushman & Wakefield’s executive MD (South Asia), agrees that there could be some price reduction in the next few quarters. “Between now and Gudi Padwa (in April), there will be a price correction of 5-10 per cent in Mumbai, while prices could fall by 10-15 per cent in its suburbs,” he says.

Builders, however, seem to disagree.

“We have an inventory problem but that is not as big as being portrayed. In many cases, this is planned inventory to stagger revenues over a period and optimise per-unit realisations,” says DLF Senior Executive Director Sriram Khattar.

“Inventory will decline through a combination of price correction, reduction in number of new project launches and higher sales,” he adds.

The view is seconded by industry body Credai. Chairman Lalit Kumar Jain says the industry doesn’t have too much of an inventory problem. “Price correction has already happened in most markets and developers are selling at their best price due to liquidity crunch. The market is almost bottoming out,” he adds.

Latest Realty News

Real Estate Regulatory Bill – Any ‘Real’ Comfort?
Sep 23, 2013
MUMBAI: The Real Estate Regulatory Bill 2013, which the Union Cabinet approved after a long hiatus in June 2013, was touted to be a game-changer for property buyers as well as the industry as a whole. The aim of the bill clearly was to provide buyers with a level playing field in an industry that is perceived as chronically non-transparent.
NRIs keen to invest in real estate in India, says developer
Sep 22, 2013
LONDON/MUMBAI: As a sequel to recent depreciation in the rupee, Non-Resident Indians from around the globe have evinced interest to invest in real estate in India, a Mumbai-based real estate developer has said.
Salaried real estate investors in mess as loan cost pinches
Sep 22, 2013
MUMBAI: The deepening economic slowdown, rising cost of living and low wage revisions, coupled with higher interest rares, are forcing salaried professionals who had earlier invested in properties to put them up for sale, say industry experts.
New land law makes affordable homes a mirage: Analyst
Sep 22, 2013
MUMBAI: Even as the new land law is aimed at providing fair compensation to those whose land is acquired, besides bringing transparency into the real estate sector, it may not be able to realise the dream of offering cheaper homes, according to an industry analyst.
In sign of downturn, Indian retail landlords finally capitulate on price
Sep 21, 2013
MUMBAI: In a capitulation that speaks to the depth of the slump in India's economy, usually tight-fisted retail landlords have become uncharacteristically flexible on rents, as Lacoste India CEO Rajesh Jain knows well.
Disappointed by RBI? Take steps to reduce home loan burden
Sep 21, 2013
MUMBAI: Home loan borrowers are disappointed after the Reserve Bank of India (RBI) hiked the repo rates by 25 basis points (100 bps = 1%) on 20th September. However, financial planners feel it is too early to predict whether banks will increase interest rates on home loans again, as many major banks, including State Bank of India, have raised rates only recently. “This is probably the first time that measures like these (reduction in the MSF rate, with simultaneous increase in repo rates) have b
New RBI chief Raghuram Rajan springs a surprise; home, auto loans set to cost more
Sep 21, 2013
MUMBAI: All eyes were on the new Reserve Bank of India governor Raghuram Rajan and his first monetary policy review two days after his US counterpart, Federal Reserve chairman Ben Bernanke, on Wednesday sprung a very pleasant surprise on global markets by not rolling back the Fed's stimulus package. An overwhelming majority of economists and market analysts forecast Rajan wouldn't touch interest rates; a hopeful minority ventured he would cut rates to boost consumer demand and economic growth.
Strong fundamentals behind more launches in Mumbai
Sep 20, 2013
MUMBAI: At a time when the economic slowdown has severely affected new launches in many property markets across India, Mumbai has seen the maximum launches in the first half of 2013. This shows without a doubt that the fundamentals of the city are still strong, making it a very resiliant property market. Even the NRIs prefer to bet on a matured market like Mumbai, compared to any other emerging market, due to the fact that the island city is the financial capital of the country. The overall real
A square look at the revised Land Acquisition, Rehabilitation and Resettlement Bill
Sep 20, 2013
MUMBAI: The Land Acquisition Bill, which the new Bill now supersedes, is a century-old law with many archaic elements and loopholes. The new Land Acquisition Bill essentially champions the cause of the marginalised section and puts in place many safeguards and checks. The Parliament has now passed the new Bill with amendments such as exclusion of irrigation projects from the compulsory Social Impact Assessment study within a period of six months from the date of acquisition, and tweaks in Clause
Home prices could drop
Sep 19, 2013
MUMBAI: Real estate developers are realising that they cannot hold on to inventory forever. Until now, they had shied away from lowering prices, but now, they will have to book sales to gain some liquidity.

Latest Realty News Of State

Realty Talk's