How long can builders bear the losses?

Completed projects still carry unsold homes, putting pressure on developers

Property Pulse

Some completed residential projects in Hyderabad are facing an unusual situation: while buyers have taken possession and moved into their homes, developers are still left with sizeable inventories of unsold flats. The projects may have reached completion, amenities may be operational and residents may have begun using the facilities, but the developer’s sales cycle has not necessarily ended.

Unsold homes in completed projects are becoming a concern for some developers as they wait for buyers to return or consider ways to clear the remaining inventory. The issue is being felt not only by smaller or mid-sized developers. Some larger players are also dealing with unsold units in completed or substantially completed projects.

For developers carrying construction and financing costs, the longer these homes remain unsold, the greater the pressure on cash flows. The question for some is no longer simply how much profit a project will generate, but how much loss, if any, may have to be absorbed before the inventory is cleared. Some developers are therefore delaying fresh launches and taking a more cautious approach to new commitments.

Slower absorption

One factor behind the pressure is the aggressive expansion undertaken by some developers between 2018 and 2023. Several builders launched multiple projects during a period when housing demand and prices were rising strongly. Projects were funded through a combination of customer advances, bank loans, financial institutions and other sources of finance.

Construction continued on the expectation that sales would generate the cash flow needed to support the projects. Where sales have subsequently fallen short of expectations, developers have been left managing construction commitments alongside unsold inventory and financing costs.

The problem becomes particularly difficult when several projects or towers are being developed simultaneously. Capital remains tied up in completed or nearly completed homes while fresh sales are required to support the financial commitments already made.

Buyers consolidated into fewer towers

In some projects where sales have been uneven across towers, developers are reportedly consolidating buyers into one or two towers and concentrating construction activity there. Such arrangements can allow developers to prioritise resources and complete occupied or substantially sold portions of a project rather than spreading construction activity across multiple towers with limited sales.

However, not every buyer is willing to accept a change in the originally planned arrangement. In some cases, developers have offered refunds to buyers who do not agree to the restructuring. For those buyers, the issue then shifts from possession to recovery of the money already paid.

Ready homes face a different test

The situation is particularly notable because unsold inventory is not limited to projects still under construction. Some completed projects also have homes available for immediate occupation. This suggests that construction completion alone does not guarantee absorption. Buyers may be comparing ready homes with new launches, evaluating prices, location, financing costs, amenities and developer credentials before committing.

For developers, this can create a difficult choice: hold prices and wait for demand to improve, offer incentives to accelerate sales, or accept lower margins to release capital tied up in inventory. The longer that decision takes, the greater the carrying cost of the unsold stock.

INVENTORY PRESSURE.

• Completed projects still hold unsold homes.
• Unsold stock continues tying up capital.
• Financing costs add pressure on developers.
• Some towers are being consolidated.
• Buyers may receive refunds instead.
• Fresh launches face greater developer caution.