Real estate sector hit by demonetization – How big is the impact?
Due to massive cash crunch resulting from demonetization by the central government has lead to more delays in ongoing real estate projects. In the times to comes, it is going to pave the way for a transparent real estate industry.
The impact of demonization on commercial and residential real estate sector is big as the investors are now waiting for more certainty before they make a move to buy. There has been an abrupt downfall in housing demand across all budget categories in the short term. People are cautious while spending and are engaging in lesser transactions. Though, a much lesser impact of demonetization has been seen in markets of Bangalore, Pune, and Chennai, which are primarily end-user driven and rely on bank funding.
In short, the demonisation move has affected the market like a storm and the buyers, owners, brokers and developers now will need some time to assess its repercussions on their businesses and decisions.
It was widely predicted that real estate sector would be hit badly by this move. Housing prices during the third quarter of 2016-17 in seven out of ten cities sampled in the RBI Housing Price Index show an increase.
Let’s have a bird’s eye view of the entire market:
In terms of sales and growth, the Indian real estate sector has been facing significant challenges in the past few years. There were slow and gradual recoveries in the sector with the help of a lot of measures.
Sales & prices: Due to many positive factors like growth in the economy, attractive deals and discounts by developers, smart cities scheme and housing for all by 2020, there was some upward movement in sales. The buyers were encouraged enough to finalize deals that they put on hold previously and also the end-users who started coming back in the market.
Unsold inventory: Most of the prominent real estate markets saw a gradual decline in the unsold inventories because of the residential market being flooded with expensive projects. Developers became amenable to negotiating more and offering attractive deals to liquidate their holdings and ensure financial stability. They also tied up with financial institutions to offer affordable loans.
New launches: In the current fiscal the new launches reduced markedly owing to higher unsold inventory. Looking after the demand for affordable housing, new launches started focusing on that segment instead of catering to the high-end residential sector.
Demonetisation brought a lot of confusion and uncertainty especially when it came to the realty sector. This radical measure affected everybody’s life. All possible economic activities slowed down to a large extent. Equally is affected the real estate sector, however.
To get a clear picture, let us examine how demonetisation affected the residential market:
Secondary market: This market got affected as due to a scarcity of cash, a large number of buyers went off the market and sellers had to wait. Buyers were into a benefit as the price will be reduced but the magnitude of reduction cannot be predicted at this stage.
Primary market: This is the area that has been overlooked because the primary market, consisting of ready-to-move homes and new projects is connected to end-users whose primary sources of funding are banks and other financial institutions. The purchase of such properties is the home loans which finance it. So, the currency affected this sector a lot. The serious buyers are already looking to return to the primary market with trend emerging pointing towards a recovery in buying sentiment.
Demonetisation has already resulted in a big downfall in interest rates. It is the duty of all individual to put their efforts towards nation so that demonization becomes a game changer.
I believe we all head in the right direction and witness tremendous changes in the economy within few years.