![]() ![]() This growth in demand has been propelled by record-low home loan interest rates, the expanding affordable home market, government initiatives such as the reduction in stamp duty in Maharashtra, and the growing importance of owning a home in the wake of the pandemic. Furthermore, in November 2020, HDFC Bank, the country’s largest home financier, reported its second-highest monthly disbursements in history. Considering that real estate in India is set to account for a hefty 13% of the economy by 2025, inventory overhangs have the potential of having a cascading impact on the economy, if left unaddressed.ĭespite these challenges, developers can take hope from improving homebuyer sentiment, evidenced by a sharp uptick in realty sales in the third and fourth quarters of 2020. Ultimately, unsold inventory has a deep-seated impact on every stakeholder in the real estate industry, creating cash-flow disruptions for developers and a stagnant market for investors and potential homeowners. For developers of such properties, taxation on unsold inventory and discounts for potential homebuyers can together prove to be too costly to bear. In some cases, premiums can exceed the cost of construction. Developers in Maharashtra pay hefty premiums, levies, and other taxes that can account for a third of the overall project cost in the state. Take the case of Mumbai, the country’s most expensive property market, which also accounts for the greatest chunk of its unsold inventory. This delivers a double whammy to real estate players, especially in markets that command high input and land acquisition costs. The move leaves out the luxury housing segment that accounts for a significant chunk of this unsold inventory – an estimated 7,364 units priced at Rs 3 crore and above, launched as far back as December 2016, that are still unsold and depreciating.ĭevelopers are also mandated to pay taxes on the unsold stock, based on their notional rental income, if the inventory is older than two years. Furthermore, the safe harbor limit only extends to residential units worth a maximum of Rs 2 crore. However, this is just a temporary fix valid only till 30 June, 2021. To address this, Finance Minister Nirmala Sitharaman allowed developers and homebuyers a 10% safe harbor limit below the stamp duty circle rate in Budget 2019-20, which was later increased to 20% in Budget 2021-22. The pandemic has further exacerbated this issue.Ī simple reduction in prices to stimulate demand will not solve this conundrum, as it exposes developers to Income Tax penalties that result from the violation of the Ready Reckoner Rate (RRR). ![]() This burgeoning liquidity crisis has an adverse impact on the real estate sector, which has remained hard-pressed for liquidity for several years due to a succession of crises and policy changes such as the 2016 banknote demonetization and the 2018 IL&FS crisis. This impacts buyer sentiment negatively, as the fear of delay in projects deters new homebuyers from making a large investment. With the developer’s capital tied up in existing projects that won’t sell, any new project launch naturally gets impacted, forcing them to stall their construction pipelines. At the same time, offering potential homebuyers high discounts to make the sale can result in massive losses for developers.īut inventory overhangs don’t just impact the developers’ profitability they have other cascading effects as well. This creates a vicious cycle where, if developers choose to wait for a buyer who is willing to pay a property’s true worth, they face the risk of further depreciation in its value. This brings us to one of the primary challenges faced by developers: the older their inventory gets, the longer it takes to liquidate. Property consultant Jones Lang LaSalle (JLL) has reported that the unsold inventory in India will take around 3.3 years to sell, especially with the demand shock that resulted from pandemic-related complications. However, selling off unsold units will not be as quick a solution as these statements will have you believe. CRCS Sahara Refund Portal: Login Link, Claim Process, Who Can Apply? All Details ![]()
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