Real-estate developers find themselves in a tough rut. Banks have tightened financing to the sector and demand has withered. In the last one year, the Nifty Realty Index is down 30 per cent. The two charts in this story show the worst may still not be over for the sector.
Mounting unsold inventory
The National Capital Region (NCR) is among the worst hit in the slump that the realty sector is reeling under. Not only has demand dried up, new enquiries are down as well. Chart 1 shows that unsold inventories are piling up. This is on a pan-India basis. The same chart also shows that both new sales and new launches are way lower than their highs seen in the fourth quarter of FY12.
The unsold inventories have gained such proportions that if the current momentum sustains, it would take more than four years to clear the existing inventory in the NCR region, estimates Ambit Capital, and more than 3.5 years to clear the inventory in the Mumbai metropolitan region. Assuming things improve from here, Ambit estimates it would still take eight-ten quarters to clear the existing inventory.
The industry's own view of the future
Chart 2 is from within the industry itself. Developed jointly by the real-estate consultancy firm Knight Frank and FICCI, the FICCI-Knight Frank real-estate sentiment index tracks sentiment of real-estate developers and financial institutions. The index is at its lowest point in the last two years. A score above 50 denotes positive sentiment while that below 50 means negative sentiment.
The current sentiment has been moving down deeper into the 'pessimism' territory. Look particularly at the future sentiment. While still above the 50 mark, future sentiment too has fallen to its lowest levels in the last two years, an indication that neither industry nor its financers see the scenario improving in the near term.
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