No one quite knows where India’s housing market is headed

• Estimates vary widely on both residential real estate sales and new housing project launches.
• Unsold inventory in major cities continues to be a grave problem.
  
• Affordable housing is an attractive area for developers big and small.

India’s housing market remains a mixed bag with no clear answers about when the sector could make a firm turnaround after a prolonged slump exacerbated by sweeping regulatory changes in the past two years.

Estimates vary widely on both residential real estate sales and new housing project launches when it comes to how they have fared this year as compared to a year ago. According to, property consultancy Knight Frank, real estate sales were, more or less, flat in the first half of this year compared to the same period last year despite a drop in home prices.

Another report by real estate group CREDAI and JLL, a real estate consultancy said that housing sales in top seven cities in India in fact grew by 25 per cent in that same period.

In terms of new housing project launches, according to data from property consultancy Anarock Property Consultants, the number of new launches across seven key cities have gone up by 10% in the first half of 2018 as compared to last year.

But on the other hand, data from Knight Frank shows that the first half of this year saw a net rise of 46% in new launches at 91,739 housing units as compared to the same period a year ago. The quarterly picture, meanwhile, was much more worrying according to the Centre for Monitoring Indian Economy, saying that new project launches had actually dropped by 60% in the most recent quarter compared to last year.

Real estate see-saw

The housing market in India has been in a slump because of a combination of factors. For starters, the mismatch between buyer and seller price expectations has led to a massive backlog of unsold inventory of housing units. But even before the houses hit the market there are usually delays in project execution and litigation on land disputes, among other things.

The introduction of regulatory changes such as the new real estate law RERA, intended to protect home buyers and bring transparency, along with the government’s demonetisation exercise and introduction of the Goods and Services Tax, pushed many large developers into a wait-and-watch mode, industry experts point out.

The elephant in the room

Despite the recent positive sentiment behind the launch of new housing projects, the massive backlog of unsold inventory, continues to be a grave problem in major cities. Nearly 576,000 housing units worth ₹4.9 trillion ($70 billion) are behind schedule in seven key cities, according to Anarock.

One indicator of the health of the unsold inventory problem is a measure called QTS - quarters to sale - which roughly measures how many quarters it would take to sell the inventory. In 2018, the QTS has improved only slightly to 10 quarters as at the end of March from 14 quarters compared to the previous year, according to a report by ICRA.

Subdued demand and the price mismatch for upscale housing projects continue to be sticky factors. "Despite increased launches, reduced price, government reforms and incentive, housing demand is yet to take off," Knight Frank India Executive Director (North) Mudassir Zaidi was reported as saying last month.

Affordable housing - a glimmer of hope

Following the government’s push into making housing more affordable and a host of government schemes including incentives, many new real estate launches are now being seen.

According to property consultancy Liases Foras, affordable homes now make up nearly 20% of residential property sales compared to 8% in FY2016. On average, these houses in the affordable segment are typically priced at an average of ₹2.5 million.

Some large and smaller developers, who are in the midst of planning new launches, are reportedly keen on affordable housing because of the expected boom in the space.

While some developers are holding out hope for a strong comeback only next year.

“We may see nearly 15-18% increase in the number of new launches in H1 2019, which could be anywhere between 96,000 units to approx. 98,600 units,” Anarock said in its report.

With housing prices also going through a correction, home buyers could end up winners in the market in the long-term.