Demonetization and
Trump’s Triumph: Impact OnIndian Real Estate
by Mr. Anuj Puri, JLL India
There is currently a lot
of debate happening on how the government’s demonetization move will impact the
real estate sector. The NIFTY Realty Index fell by almost 12% yesterday, purely
on sentiment.
While bellwethers are hinting at dark days ahead, these fears can
at best be called unfounded when it comes to the Indian real estate business
within the country. Let's look at how the major real estate segments will fare:
· Residential real estate:
The primary sales segment is largely influenced
by home finance players, and deals tend to be facilitated in a transparent
manner. This segment will therefore see at best a limited impact in the larger
cities, though some tier 2 and tier 3 cities where cash components have been a
factor even in primary sales will see a business crunch.
The secondary or
resale market will, however, certainly be impacted, given the fact that this
segment does see the involvement of cash component.
· Commercial real estate: There will be a minimum impact on office /
industrial leasing and transactions business, given that cash components do not
play a significant role in such transactions.
· Real estate investment markets: Projects could get stretched as informal
sources of capital may not be available.
This, in fact, spells more
opportunities for institutional capital. FDI, private equity and debt players
will suddenly find the market even more transparent and attractive. Moreover,
banks could start funding land transactions, thereby decelerating land prices.
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| Anuj Puri, Chairman & Country Head, JLL India |
· Retail real estate: Retailers could see some impact on their
business in the short-to-medium term due to reduced cash transactions. The
luxury segment is likely to be hit because of the historically high incidence
of black money acceptance in this segment.
However, credit / debit cards and
e-Wallets should come to the rescue. Overall, the domestic consumption story
remains intact, with no threat to the overall strength and growth of the Indian
retail industry.
· Land sales and leasing: Where land transactions have been happening in
the realm of joint ventures, joint development or facilitating corporate
divestments, will see very little impact of the demonetization move. This is
because JVs, JDs and corporate divestments are all quite institutionalized,
with little or no cash involvement.
However, those carrying out direct land
deals will doubtlessly suffer - especially when it comes to agricultural land
transactions, which tend to involve significant cash involvement.
· Developers: There will be minimal impact on large institutionalized
players with a solid brand and governance framework. Sales largely driven by
the salaried class or investors with limited cash involvement would not suffer.
Smaller developers are understandably very concerned right now because many of
them have depended on cash transactions. We are very likely to see a clean-up
of non-serious players due to this ‘surgical strike’ on the parallel economy.
The impact of RERA will further discipline the industry, which will be good for
its health in the long term.
· Hotels and hospitality-related real estate in the organized sector will see a very
negligible impact by the demonetization.
Impact of Trump’s
Triumph
It is a bit early to
make any accurate predictions on the full impact of Trump's victory in the US
presidential election on Indian real estate.
I agree with Megan Walters, Head
of JLL's Asia Pacific Research, when she says that we may see some volatility in
currencies within the APAC region as the news is digested and risks are
assessed.
At present, the US dollar is down and we can expect the Indian rupee
to see some volatility too.
For real estate
investors, currency gains might be sufficient enough to prompt global investors
to execute exit strategies on cross-border investments.
In fact, large
institutional investors would be well-advised to implement investment
strategies now, before the market picks up again. Asia Pacific, and to some
extent India, could stand to gain if investments pick up.
On the larger front of
Trump's victory, the overall sentiment implied by statements that he has made
so far with regards to India can have some positive political implications.
That said, there are definitely concerns in terms of how Trump’s win can affect
outsourcing to countries like India.
The country's real estate sector does
depend a lot on the commercial real estate demand generated by this sector.
Likewise, the entire IT/ITeS sector has had a direct correlation to
residential demand in the country.
What can be said with
any degree of certainty is that there are some very interesting times ahead.
About the author..
Mr.
For media contact
Arun
Chitnis
Head –
Corporate Communications & Media Relations
JLL
India
Level
6, Amar Avinash Corporate Plaza
Bund
Garden Road,
Pune
411001.
Tel:
(020) 30930441 Fax: (020) 40196101
Mob:
+91 9657129999
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