Unsold Premium Real Estate Inventory Jumps, But Not A Concern Yet

The Indian real estate sector continues to scale new highs as sales in the residential market touched an 11-year high during the first half of the year, according to a report by Knight Frank. However, it highlighted that unsold inventory in the overall market has increased by 3%, led by a 27% jump in the premium segment — houses with a ticket size of Rs 1 crore or more.

Approximately 1.73 lakh units were sold during this period, a growth of 11%, with most markets being at multi-year highs, Hyderabad scaled a new all-time high with 18,573 units sold, it said.

Home sales in Mumbai also stood at a 13-year high, rising 16% to 47,259 units. This was fuelled primarily by units priced over Rs 1 crore as sales in the segment more than doubled compared to the same period last year.

"The significant shift toward premiumisation has taken root in the residential market with homes in the higher ticket-sizes driving market volumes to 11-year highs," Shishir Baijal, chairperson of Knight Frank, said.

Premium housing products priced over Rs 1 crore have conclusively emerged as the largest segment in the market, accounting for 41% of the sales and experiencing the most growth during the period, the managing director said.

Sales in this segment have grown 51%. However, sales in the categories of Rs 50 lakh to Rs 1 crore, and less than Rs 50 lakh have dropped by 8% and 6% respectively as homebuyers has shifted to the premium-priced category during this period.

The supply levels have exceeded sales consistently since the beginning of 2022, causing unsold inventories to build up gradually in the market.

The situation may raise investor concerns on the overall health of the real estate market, with top listed developers maintaining their sales and launch momentum for the current financial year. However, the report stressed on the need to use a metric called 'quarters to sell' to assess the market health in a better manner.

The rising inventory level can seem like a matter of concern when viewed in isolation, but it must be seen in conjunction with the sales velocity to depict a more accurate picture of market health.

The QTS level is a metric that enables this by calculating the number of quarters required by the market to exhaust existing inventory levels at the sales velocity of the trailing eight quarters. A lower QTS level denotes greater sales traction and better market health.