In 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 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? How will it affect the prices of land and flats 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? What will be its short term, medium and long term effects?
Courtesy – financialexpress
The financialexpress has published an article regarding, Demonetisation drive to hit property market, prices in Rs 25 lakh flats category may fall 5-6%
The real estate sector, which was looking to return to normalcy after a prolonged lull, has been dealt a huge blow by the government’s decision to abrogate the legal tender status of Rs 500 and Rs 1,000 currency notes. Developers say both demand and prices have started crumbling even as analysts believe that the government’s move will help the sector move towards transparency, accountability and maturity.
“The demonetisation move has hit us hard, there are no sales at the moment. Customers are in a wait-and-watch mode and neither cash nor cheque transactions are taking place. In fact, in some cases, ongoing bookings are also getting re-negotiated,” said Manohar Shroff, partner, Shivam Builders, Navi Mumbai.
There should be a correction of 30-40% in the prices of apartments in the above R5-crore range, while in apartments ranging between R25 lakhs and R30 lakhs, 5-6% correction by way of discounts could be expected, he added.
Ashish Shah, COO, Radius Developers said customers are right now trying to figure out the impact of this move on their underlying business and cash flows. At least for the next 3-4 weeks until some clarity emerges for them, the real estate market, which was already sluggish for the past 36 months, will see negligible sales.
“It will have a negative impact on prices as well, could be in the range of 15% in the premium housing segment, but not for very long. We are also not immune to these changes, so depending on the transaction, there may be an impact on pricing,” he said.
Ravi Ramu, CEO and managing director, VBHC-Value Homes, said, “Restate to the extent it depends on ‘cash transactions’ is dead for now. Land will begin to come at rationally lower prices. Home sales from builders who have operated in the past without cash will substantially increase.”
Gaurav Gupta, Director, Omkar Realtors and Developers, said over the next 3-4 months there will be an impact on sales as people try to stabilise their financial positions. As for prices, the secondary market sales where the component on the cash transaction is high, will be impacted significantly. However, I do not see an impact on the primary market prices.”
Knight Frank India’s CMD Shishir Baijal said, “Prices coming down to more reasonable levels in the residential property market cannot be ruled out. In the immediate future, the sector will be under serious pressure with volume and number of transactions in residential and land markets seeing a substantial downward trend.”
The secondary market is likely to witness a huge fall in transactions given that most of the sales in this segment are done through cash.