One Year Of Demonetisation: Impact on Real Estate

One year ago, India was caught by surprise by the unexpected demonetisation of ₹500 and ₹1,000 banknotes. Announced by the government to crack down on the use of counterfeit cash to fund illegal activity, the sudden note ban was divisive and disrupted the country’s economy. One year on, India’s developers reflect on how the initiative has impacted the real estate industry.

Markets that typically had a large component of cash in the transaction or were highly speculative activities were the worst affected, as transaction activity came to a near halt as a result of the demonetisation move. Luxury and high-end housing markets and speculative land transactions were the worst affected. The impact lasted a few months post the move before alternate payment structures were created. Demonetisation evaluated along with implementation of other policy reforms like RERA, Benami Transactions (Prohibition) Amendment Act and GST, is slowly but steadily bringing in positive changes in the real estate sector by bringing in transparency and accountability.

Demonetisation did created a drastic slowdown in development and construction activities and reduced the end user activities in the real estate sector. However, Demonetisation and other regulatory and legislative reforms in the India such as RERA, Benami Transactions (Prohibition) Amendment Act and GST have helped in structured development of the Real Estate Sector in the last 1 year.

The end user sentiments and activities, are slowly on the rise as developers are meeting their demand of creating more affordable and mid segment housing. Developers will be seen launching more housing projects in the next 12-18 months, and also deliver these projects efficiently and on time by implementing practices that will bolster buyer and investor confidence in the medium to long term.

The primary residential market in certain cities where most transactions are financed through legal channels of banks and housing finance institutions providing home loans to buyers did not saw significant impact however the market sentiment made people delay their decision making. Only in projects where cash component was involved and those in the secondary market saw a significant impact.

This business platform was running because of black money and people involved wanted to reduce their tax, so the direct impact would be seen to have no black money in this way. Transparency is going to play an important role to optimize the price up to the minimum possible rate. This significant change stated us steady and valuable mark in this world.

Still, Retailers have believe that Demonetisation is not going to affect their market because of having a good reputation. Demonetisation provided an opportunity that people having limited salary can also get a relief on housing loans on an affordable price and low EMIs.

Primary Residential Market

The primary market was one of the first facet to bear the force of currency ban. By the end of 2016, the realty market stood with an inventory store of almost 1.5 lakh units, which would have taken up to two years to be engrossed completely. Post demonetisation, the pace of housing sales dipped by a whopping 20% before hitting a rock-bottom in the next three months. The sales volume recorded for Oct 2017 is around 8% lower than the same month last year. However, market has risen over the impact of demonetisation and is essentially subdued on account of ambiguities pertaining to RERA and GST.

Secondary Residential Market

Capturing nearly three fourth of the total residential market across zones, the secondary market played a major role in bringing real estate activity to a halt. As enquiries and sales hit a rock bottom, ‘ask’ rates of resale properties, too, crippled by an average of 20% in the short-term. This consisted of a section of potential homebuyers who deferred their purchase decisions due to demonetisation and then waited for RERA and GST to open out their impact on prices. The completion of RERA in the second quarter of 2017-18 improved the general trade sentiment and increased the number of enquiries in the secondary market.

Rental Market

The rental market has been a gainer on the back of muted buying sentiment triggered by demonetisation, which was long-drawn-out with the implementation of RERA and GST in the subsequent quarters.

RERA saw most developers go into wait and watch mode and not launch new projects and the implementation of GST without having the necessary infrastructure had a negative impact on the industries connected to the real estate sector.

Implementation of RERA and GST, transparency and accountability in the sector has boosted significantly for influential investors due to which they are looking at Indian Real Estate with transformed interest. Only trustworthy developers who conduct their business with transparency will survive in the future. In 2018 the focus is likely to be on concluding existing projects on time and vending of existing inventory. This entire sign shows that the demonetisation has brought the positive signal in the real estate sector.

Ease of payment schemes and hidden discounts, which flooded the market just after demonetisation, continue to be the preferred marketing tools for developers to deal with the twin impact of GST and RERA. Still, it probably will take more to move the market in favour of the developers.

Author: Gunjan Johar, Blogger