Nearly 50% of unsold residential inventory faces high execution risk

Nearly 50% of unsold housing inventory across India is facing the risk of being delayed or is susceptible to price correction. More than the risk price correction; the risk of default in execution poses a bigger challenge for Indian real estate, showed a stress test conducted by Liases Foras Real Estate Rating & Research.

Around 33% of projects in Mumbai Metropolitan Region (MMR) and 59% of National Capital Region (NCR) projects fall in high and very high execution risk categories. On a region level segmentation, MMR has the highest risk of undergoing a price correction where 10% of projects are expected to undergo high correction of more than 20%.

The stress testing has been carried out across 18,225 ongoing real estate projects across 50 cities in India and covers over 85% of developers’ residential segment supply. However, the test has been conducted based on data available for the quarter ended March and pre-Covid period.

“While this assessment is based on pre-Covid data, the situation would worsen further as both construction and demand has taken a big hit,” said Pankaj Kapoor, managing director of Liases Foras Real Estate Rating & Research.

The all India residential real estate market closed at an inventory of 13.45 lakh units, measuring 1.58 billion sq ft with an overhang of 45 months when the nationwide lockdown was enforced towards the end of March.

The supply side of the market was struggling even before the pandemic had set in. Taking a turn for the worse, COVID-19 and the nationwide lockdown has affected the demand side of the market which is the buyer’s sentiment.

Job losses, salary cuts, reduced savings and uncertainty of a normal world, have induced negativity of the buyer towards home purchase. A distressed market puts the already struggling projects–prior to Covid19–into a tighter position making them susceptible to default and thereby leading to chances of delinquency.