A combination of relatively muted supply of residential property and firm demand has aided in faster absorption of housing unit inventory in key Indian markets. Thus, the unsold residential unit inventory is falling, a trend well captured by the inventory months data. Inventory months refers to the number of months required to sell the currently available inventory. In August, inventory months at a pan-India level (top seven cities) fell to nearly 17 months from 20 months in January, showed data compiled by PropEquity and Nuvama Research.
“Pune remains the best market with just 10 months of inventory, followed by the southern markets of Bengaluru, Hyderabad and Chennai with 13–18 months each and the Mumbai Metropolitan Region and Kolkata at 20–21 months each,” said the Nuvama report dated 27 September.
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The National Capital Region has shown dramatic improvement with inventory months falling to 22 months in August from 29 months same month last year.
As the chart alongside shows, this metric has been falling steadily in 2023. Notably, the correction in unsold inventory levels amid a robust demand environment has boosted real estate prices in most of the major cities. In this backdrop, investors rewarded real estate stocks for sustaining the sales momentum despite the spike in home loan rates. Plus, companies have also taken initiatives to improve their balance sheets. The Nifty Realty index has gained 32% so far in 2023.
But there is a catch. A gush of supply or new launches is expected to come into the market in the second half of FY24. In the June quarter (Q1FY24), launches were weak and according to analysts, even in Q2, the pace has been moderate.
The launch guidance of some realty developers means they have a lot of ground to cover to meet the set target. For instance, DLF Ltd eyes 11.2 million square feet (msf) launches in FY24, but it did not launch any project in Q1. Macrotech Developers Ltd launched 1.8msf in Q1 and targets 9.8msf for the rest of FY24.
Thus, significant launches are expected in Q3 aided by the festive season. To be sure, the pace of absorption of unsold inventory would be crucial, going ahead. So, with new supply coming in, which is typically priced lower for under construction projects, the sale of existing inventory could be impacted.
All said, while sustained demand has aided the performance of real estate stocks this year, a further re-rating is now contingent on how the supply-side dynamics plays out.
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Updated: 29 Sep 2023, 01:04 AM IST