442 m square feet of real estate. That is the kind of inventory that 6 Indian metros were together holding at the end of December 2010. The interest costs on housing loans are already hovering in double digits. Hence chances are that the inventory could only pile up in the months ahead. In terms of number of months of inventory, the data is even more shocking! Based on average monthly sales, a healthy real estate market usually has 8 months of saleable inventory. As per a business daily, the same was nearly thrice the figure (23 months) in December 2010. And we will not be surprised if most of the unsold inventory is in the premium housing segment.
Being its conservative self, the RBI has significantly tightened lending norms for the purchase of high value properties. The high rate of slippages in the quality of commercial real estate loans is also a worry to the central bank. Even as the supply of residences outstrips demand, property developers will have an estimated Rs 140 bn to be repaid to banks by the end of the fiscal. The instances of loan defaults is therefore expected to increase in this segment as the prospects of accessing equity markets for funds has also dried up for the sector.
Data source: Mint
The woes for India's realty sector does not end there. Besides commercial, the outlook for residential projects is also not very rosy. The drop in residential property sales has led to a spike in inventory levels in several cities. As per a Credit Suisse report, amongst the metros, Mumbai has been the worst hit in terms of residential projects. The city had nearly 88,000 unsold flats at the end of 2010. About 25,000 of them are within the city limits of India's commercial capital. Given that most of them belong to the premium segment, the sale for them is unlikely to move faster in the coming months.
Thus while China worries about the excessive bank lending to its real estate sector, we may have a real estate bubble bursting nearer to home. What is a matter of relief is that our central bank is on top of the matter. The RBI has done a good job of restraining unviable lending to real estate in the past as well. And it is unlikely that there will be any 'Too Big To Fail' players here.