222 mn sq ft unsold stock Paints A Very Gloomy Picture For NCR Residential Real Estate Market

The outlook for NCR residential realty market remains negative as high inventory overhang and low absorption levels continue to pose challenges. The region has high unsold stock, amounting to around 222 mn sq ft across 1.7 lakh units, but annual absorption is low at under 15%, implying an inventory overhang of over five years, an ICRA report has said.

NCR region has been witnessing a high residential inventory build-up since the past few years with supply additions outpacing demand, leading to high inventory overhang. This coupled with low absorption levels (annualised absorption has been under 15% during 9M FY2021), is expected to continue to pose challenges for timely liquation of inventory, particularly in over-supplied markets such as Noida and Sohna, it said.

The second largest residential realty market in India after MMR; the NCR residential realty market has unsold stock of around 222 mn sq ft across 1.7 lakh units (as on December, 2020), spread over three key micro markets – Faridabad, Gurgaon and Noida. Noida is the largest micro-market, contributing to around 66% of the inventory, followed by Gurgaon at 22% and Faridabad at 3%. The balance inventory is spread across various areas of NCR, including Delhi, it said.

“Real estate development in NCR has been supported by its strategic location surrounding the capital city of the country, and well-developed infrastructure. Availability of land at low rates and resultant affordable ticket prices of housing units in areas such as Noida and Faridabad have also supported residential supply and demand.

“However, the region remains marked by significant over-supply. While a major portion of the inventory is concentrated in the affordable-mid segments, which have seen favourable demand trends, a large part of this inventory has remained non-saleable due to peripheral locations with poor connectivity and weak infrastructure,” said Mahi Agarwal, Sector Head and Assistant Vice President at ICRA.

Noida’s realty market has, in particular, witnessed significant issues, with certain developments undertaken by large developers such as Amrapali, Jaypee, Logix, Three Cs, Supertech etc. getting delayed/stalled and undergoing litigation, which have adversely impacted consumer sentiment, the analysis said.

The NBFC liquidity crisis further exacerbated the situation. Some of these groups are undergoing insolvency proceedings, which has resulted in their exit from the market. The gap is being filled by the entry of certain national-level developers and the rise of local players.

With these newer entrants gradually building their market position through timely delivery of quality projects, consumer sentiment is expected to improve going forward, notwithstanding the impact of COVID-19. The presence of smaller developers however, remains substantial, and given the slower recovery being experienced by such players post COVID-19, overall market performance is expected to remain subdued, it said.

Gurgaon is relatively better-positioned and contains some of the most premium and fastest-growing markets within the region, underpinned by its strategic location and well-developed infrastructure. However, certain areas, such as Sohna, continue to have an overhang of higher ticket-size inventory, which has adversely impacted overall absorption levels in the region, it said.

Faridabad is a small market, but benefits from good connectivity and proximity to Delhi, significant employment opportunities in neighbouring areas, and availability of affordable options. Sales in this region are expected to recover to the healthy pre-COVID levels once the impact of the pandemic recedes.

“Revival of consumer sentiment will remain key for ensuring timely liquidation of the high unsold inventory, which would, in turn, support the adequacy of operating cash flows to meet debt obligations for real estate developers. The government has been taking steps to boost the overall realty sentiment given the increasing instances of project delays, and measures like the creation of the SWAMIH fund and resolution through forums such as NCLT under the IBC and the RERA have addressed key buyer grievances and aided project completions,” said Agarwal.

The prevailing low home loan interest rates have also been supporting overall housing demand. In addition, timely development of upcoming/proposed infrastructure projects would also support connectivity to peripheral areas and thus increase the marketability of projects which are non-saleable at present, she added.

(Source: Moneycontrol)