Impact of
Demonetization Residential Real Estate
By Mr. Ashwinder
Raj Singh, JLL India
Most of India's
business environment has been tremendously shaken up by the recent
demonetization of the higher currency notes by the Modi government.
This is the third
demonetization exercise undertaken by the Indian authorities, if we include the
one done just before independence in 1946. It is still too early to accurately
gauge the depth of the shakeup this has caused, but its impact on the real
estate sector is immediately visible.
Since Modi's surprise
announcement, the ripples have been spreading through the already disturbed
sector, which has been experiencing excruciatingly slow growth in recent times.
Poor sales leading to
almost flat prices, heavy liquidity challenges and high unsold inventory have
all colluded to keep real estate sector away from fulfilling its potential -
and provide necessary residential stability to average citizens.
Undeniable impact on
real estate
The real estate sector
will definitely be affected by the demonetization exercise, as it has
traditionally seen a very high involvement of black money and cash
transactions.
However, almost all such incidences have been in the secondary
sales market, where cash components have traditionally been a veritable 'must'.
In other words, the resale properties segment will take a big hit.
However,
short-term pain is inevitable when we look for any eventual long-term cure for
the disease. There has for long been a strident demand to bring transparency in
the sector so that the it becomes more organized, and cash dealings must
necessarily be the first symptom of the disease to be dealt with.
The luxury and
high-end segments of residential real estate will also see a major impact from
this exercise, since it is another area which has seen a lot of payments done
in cash. The legal banking/financing channels have accounted for only a small
part of all transactions in this space.
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| Ashwinder Raj Singh, JLL India |
The demonetization move is likely to
result in luxury property prices dipping by as much as 25-30% as sellers
struggle to offload properties to generate liquidity. This means that luxury
home buyers will suddenly have a much wider bandwidth of options to choose
from.
With black money
suddenly being wiped out of the market, a lot of investors who have been investing
in projects with unaccounted-for money - and raising prices to book profits -
will be eliminated from the system, thereby aiding a much-needed
correction.
What stays mostly
unaffected?
The primary market -
or, more specifically, the market formed by projects undertaken by reputed and
credible developers in the top 8 Indian cities - will remain more or less
unaffected. This is because buyers into such projects take the home
loans/finance route to buy their homes, and transactions are done through legal
channels. Therefore, there will not be any major impact on sales in this
segment.
However, there might be an impact on quite a few projects in tier 2 or
3 cities where cash has played a role even in primary residential sales.
However, the turmoil in this segment will settle down in a short period of
time.
Overall Impact on the
sector
In the past one year,
there have been a few positive and potentially long-lasting changes in the
Indian real estate. The passing of RERA (Real Estate Regulation and Development
Act 2016), the Benami Transactions Act and now the demonetization move will
ensure that going forward, the sector will lose much of its historic taint and
become more transparent.
Only players who conduct their business with integrity
will survive. This bodes well for end-users, who will be aware of their rights,
have the assurance of not being cheated and will no longer need to contend with
constantly rising prices.
They will be able to buy properties of their choice
at affordable prices, in projects which will assuredly be delivered on time.
The demonetization
exercise was a very necessary step which was bound to bring with it a
tremendous shake-up wherever black money has played a major role.
Over the long
term, the Indian real estate sector will emerge stronger, healthier and capable
of long periods of sustained growth. As of now, there is no reason for
developers and investors who have conducted their dealings transparently and legally
to panic. It will essentially be business as usual for them.
About the author..
Mr. Ashwinder Raj Singh, CEO - Residential Services, JLL India
For media contact
Mr. Arun
Chitnis
Head –
Corporate Communications & Media Relations
JLL
India
Pune
411001.
Tel:
(020) 30930441 Fax: (020) 40196101
Mob:
+91 9657129999
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