Builders begin a project with great expectations. But from the time of construction to wrapping up of a project, a builder has to go through various phases. And if the market is sluggish, the builder has to deal with unsold inventory and hiccups in estimated income. Astro strategist has timely and insightful solutions for both seasoned builders and beginners
At a time when realty markets transit from a buyers’ market to sellers’ market, unsold inventory is bound to be a natural progression. The buyers find it hard to sell off their stock as the market tends to be sluggish.
Usually, an inventory overhang of 18-24 months is considered to be healthy for those in realty. But if it extends beyond two to three years, then the builders end up in a tight spot. For the uninitiated, inventory overhang, also known as ‘months of inventory’ is an estimate of the amount of time it would take to sell inventory in an area. This indicates the popularity of a project and overall situation of the market. Inventory overhang can be a key factor while investing in a project.
If the inventory overhang goes beyond 18-24 months, then it means the units are selling at a slower pace and this refers to oversupply vis-a-vis the demand in the project or projects. At such times, the buyers get lucrative deals from sellers and it becomes a buyer’s market.
If on the other hand, inventory overhang is less and is around 6-8 months, then it means the units are selling quickly and there is rising demand for the project or projects. This then becomes a seller’s market. This will mean that the buyer will get multiple offers and he can sell the unit for the best price and earn a healthy return on investment.
Problems faced by builders in terms of unsold inventory
■ Let’s take the example of a builder who availed construction finance, say 12% to 14% to build a project, unsold inventory has a carrying cost. In simple terms, if the buyer manages to sell the project quickly, then it will reduce debt in books. However, if inventory remains unsold, then the developer has to keep paying interest on outstanding debt.
■ As working capital gets stuck in unsold inventory, developers end up being unable to plan their cash flows for their future projects. This will also result in new project launches taking a hit.
■ Suppose a builder has unsold inventory, but he has let out the property, then income tax is applicable on notional rent. During the last budget, the finance minister had increased the period of exemption from one year to two years. However, if the builder still has unsold inventory, then he has to dole out notional rent and pay income tax on it.
■ Apart from the costs mentioned above, unsold inventory also has maintenance costs, which the developer has to bear. For unsold inventory, regular maintenance of fittings and fixtures need to be maintained on a regular basis in order to keep them in unusable condition.
Added to this are problems that impact the buildings
a) Unsuitable location: A property that is not located closer to amenities takes time to sell. India has last mile connectivity issues and buyers would not want to buy properties that are far off from metro stations, bus stations and other amenities like convenience stores, supermarkets, etc.
b) Stand-alone properties take time to sell: If the property is in a stand-alone building, instead of a cluster of buildings, buyers are not attracted to such properties as there are hordes of options available in the market.
c) Extended construction time: If a project takes forever to complete, buyers lose interest in such projects. That’s when delays happen and unsold inventory results.
d) Excess inventory in the market: If there is excess inventory in the market, then it deters the potential buyers and this leads to unsold inventory.
e) Vaastu and feng shui problems: It is of primary importance. Even if people don’t directly discuss such topics, they do their own checks and if a building does not comply with vaastu and feng shui principles, they are discarded.
f) Recession in the market: If the economy is going through recession, then the buyers will be sluggish in investing, in hope of better deals.
g) Over-expectation of the sellers: Not all projects are the same. Some are premium units, while others are available in the budget market. So, if the sellers compare prices with premium units, then their inventory is likely to remain unsold.
How astro strategist Hirav Shah helps builders with unsold inventory and estimated revenues:
Having a dream home is everyone’s desire. Of course, not everyone can invest in huge properties. There is an entire segment of budget realty, where the buyers consider each and every detail before owning a unit.
It is up to the builders to make their units irresistible and ensure that they are sold within a stipulated period of time. However, at times, the best efforts of builders do not help them in clearing unsold inventory and accruing estimated costs.
They might hire consultants who are market leaders, but it does not solve their problem, as the consultants talk purely in terms of market trends.
But it has to be remembered that developments take place on a daily basis, government policies change and since realty is a huge lobby, they manage to get sops and exemptions.
Yet, all these are not final solutions to the problems of builders.
Astro strategist Hirav Shah is a seasoned hand at real estate strategy. He is well-averse with all the happenings and developments in the realty industry. Hirav Shah is also known to be a business problem astrologer and has immense knowledge of the corporate world.
Being an ace real estate investment advisor, astro strategist Hirav Shah always comes up with practical solutions for unsold inventory and estimated revenues by digging into Real Estate Project’s astrological analysis. Of course, some readers could get deterred by the mention of word astrology.
But astro strategist Hirav Shah looks into a client’s personal chart and Business Chart to forecast when his troubles would end and when he can pump in more money into their projects. He also predicts a timeline during which a client can make changes in his business strategy to get holistic results.
When astro strategist Hirav Shah comes into picture, he gives sure-shot solutions by mixing business, corporate tactics and astrological insights for the benefit of builders.
