Like any other product, real properties also work on the demand and supply graph. The market has gone downwards in the past couple of years, owing to various factors. This resulted in the developers ending up with a lot more properties unsold than what was expected.
An inventory in general means the unsold units of goods remaining with a manufacturing concern at the end of a certain period.
Similarly, inventory in terms of real estate refers to the number of properties that remain unsold by a developer at a given point in time. It is however not limited to just properties put up for sale. It also encompasses properties that are available to be put on rent but the landlords have failed to find the tenants. The said property is considered inventory for the period of time it goes unoccupied. The same definition may also extend to the lots that are under development.
Since every real estate transaction involves a large amount of money, it is important for a buyer to understand the market situation before closing any deal. The inventory level of a developer can be a good indicator of the same. It not only speaks about the demand and supply graph of the markets but also the developer and the bargaining power of the buyer. Some important features of inventory are explained in detail as follows:
A higher inventory indicates a slow down in the market. This also means that there is not enough demand for purchasing real properties amongst the buyers.
Thus for a buyer, this indicates that the sellers may be more willing to negotiate the prices. And that they have more options to choose from. Also, if they analyse properly, they can save a lot of money in buying a property of their choice because there might not be many buyers to compete with.
A lower inventory level on the other hand is an indicator of a boom in the real estate market. The demand to purchase or invest in real estate is high.
It suggests a tough competition between the buyers, and a more rigid attitude of the sellers when it comes to negotiating the prices.
For a company operating in the real estate niche, high inventory levels can indicate issues with their construction quality, tight cash flows, increased financial stress and problems in servicing debt.
