Unsold Homes In Northern Region Need 65 Months For Absorption: Economic Survey

The Economic Survey presented in Parliament on Friday (February 26) says that the slowdown in sales in the housing sector has resulted in a sharp increase in the inventory of unsold housing units particularly in the northern and western region.

"It is estimated that at the current rate of monthly sale, the unsold housing stock in the northern region would need 65 months to be absorbed. The inventory overhang in the western and southern region is much better at 30 and 22 months," it said.

However, the survey noted that despite weak sales and rising inventory, the housing prices in many cities and towns have increased in 2015, as per the National Housing Bank’s RESIDEX (index of residential prices). In 2015, out of 26 cities, 20 witnessed increase in prices over 2014, with the maximum increase observed in Guwahati (9 per cent) followed by Pune (8 per cent), while five saw decline, with the maximum fall witnessed in Chandigarh (-8 per cent) followed by Delhi (-4 per cent).

"Realty prices are just holding up due to heavy inflow of capital in the sector over the last few years. It is estimated that since the beginning of 2015, about US$10 billion or Rs 60,000 crore was invested in the sector by domestic and foreign investors, the highest in the last seven years. Most of these investments have come via structured deals and non-convertible debentures (NCD) together estimated at around US$9.5 billion. These investments, largely in the nature of debts and FDI equity inflows in the construction development sector, have been only to the extent of US$81 million between April and October 2015. High level of debt investment, while providing interim relief to the sector, poses a high refinancing risk if the housing sales continue to remain weak," the survey noted.

The survey said that the real estate and ownership of dwelling is an important contributor to the Indian economy. It constituted 8 per cent of India’s gross value added (GVA) in 2014-15 and grew by 9.1 per cent. "It also generates significant income and employment owing to large forward and backward linkages through creation of demand in the input sectors and real estate services," it said.

According to the survey, several policy initiatives were taken in 2014-15 to help this sector, including amendment of the FDI policy and removing the minimum floor area and minimum capital requirement provisions.

"The RBI and the National Housing Bank have also reduced risk weight for individual housing loans of up to Rs 75 lakh from 50 per cent to 35 per cent for Banks and Housing Finance Companies, respectively. Further, the loan-to-value ratio has been increased to 90 per cent for loans up to Rs 30 lakh," it said.