Demonetisation by the Government of India, announced on Tuesday 8th November, that Rs. 500/- & Rs. 1000/- notes would no longer be a legal tender. This is likely to hit the real estate sector hardest. It’s not a secret that in the deals involving the sale or purchase of plots, houses, flats, and commercial property still involves a combination of cheque & cash component across India. However, as per real estate developers, the decision to curb black money can bring more transparency into sector.
This bold move of Government has suddenly cut off the supply of cash money from the market which was the strength and tool of real estate players. Will this affect the real estate sector in Delhi-NCR or across India? Will it affect the ongoing projects as well as projects in the pipeline? How this will affect the property transactions, that are done but yet to close?
The housebolo (NDTV Venture) has published a beautiful article regarding whether property in Delhi-NCR will fall or not!
The government’s recent move to demonetize 500 and 1,000 rupee currency notes has taken everybody by surprise. And none more so than the Indian real estate sector and the Delhi-NCR property markets.
Delhi’s property market is a secondary market built around property owners reselling homes that they have obtained from the primary market (i.e. developers). And there is no hiding the fact that almost all transactions that take place here see a part of the property value being paid in cash, which is not reported to the tax authorities. A practice that has come crashing down thanks to demonetisation and which experts claim will bring down property rates here.
“There is a lot of panic and shock among investors and builders. I see that in next 6-7 months, rates are going to go down. The transactions will be now more close to the circle rates. As of today, the rates have come down by 25% to 30%,” says Tarun Bhatia, vice-president of the National Association of Realtors of India.
This is seen on the ground, with real estate brokers talking about property deals being cancelled or altered due to the government’s decision. For example, a property in South Delhi that was listed at Rs 3.25 Crore is now being offered at Rs 2.25 Crore, a drastic fall that indicates how over-inflated prices were in this market.
In a recent report, rating agency Fitch stated that homebuilders in the NCR will continue to face the heat as most sales of the higher-end properties were to high-net worth individuals and investors, two categories of buyers that have been hit badly by the government’s crackdown on black money.
“Homebuilders with greater exposure to large-ticket premium property projects are likely to be the most affected. Furthermore, we expect homebuilders more exposed to projects in the National Capital Region (NCR) to be hit more than in other regions, because NCR is known to have a greater reliance on cash-based transactions” says the Fitch report.
Amit Oberoi, national director of Colliers International claims that the Delhi-NCR property markets are already reeling under low transaction volumes due to circle rates being higher than the market rate. Demonetization will only see demand for real estate here reduce even further.