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Real Estate: Reality Check On Realty Market

Gains have rained on consumers since that ‘short-term pain’ in the real estate market that compelled players to get more organised

It is no secret that the residential real estate market bore the brunt of demonetisation of Rs 500 and Rs 1000 currency notes announced on November 8, 2016. A drastic drop in sales of houses and new property launches was the immediate fall out. Widely known for its part cash-part cheque deals and as a parking space for black money, the real estate market was bound to witness a massive decline in sales, consumer interests and new projects.

According to one report that analysed the sales of residential housing units for October-November-December of 2016, property sales dropped by 44 per cent at around 41,000 units. New launches suffered the most, clocking a massive drop of 60 per cent or more over the same period in the previous years.

So harsh was the impact of demonetisation that the October-December quarter of 2016 managed to dent the overall annual statistics in the residential real estate market. In fact 2016 emerged as the worst performing year in terms of sales volumes in a span of several years, with an overall nine per cent drop in sales in the top eight cities. In actual terms, the estimated sales of housing units in the 2016 calendar year was around 2.44 lakh units compared with 2.67 lakh units in 2015.
The sting of demonetisation has persisted through most of 2017 as well. A report by property consultant Knight Frank says home launches in India’s top eight cities fell 41 per cent in the first half of 2017, the biggest drop in seven years. The drop in sales tantamounts to a drop in notional revenue from property registrations and stamp duty charges of more than Rs 22,600 crore across the top eight cities.

Anshuman Magazine, Chairman, India and Southeast Asia, CBRE, acknowledges the impact of demonetisation. “The demonetisation drive last year did impact the residential market and did cause some short-term pain,” says he.

In private, most developers concede that demonetisation had severely hit sales of either their own projects or those of their peers. But on record, almost all sing another tune. “Demonetisation did not affect the primary market in the housing sector because most transactions were loan based and did not have any cash involvement,” says Jaxay Shah, President, CREDAI National, the largest body of real estate developers. Shah is partly correct. What he does not say is that sales had been sluggish in the primary market for a number of years. New projects have been slow to take off for several years in a row. It is the secondary market that has stoked investor interest, which incidentally, is where the impact of the demonetisation exercise has been most harsh.

The truth tumbles out when realtors are probed about how demonetisation and Benami laws had impacted  the real estate sector.  “Demonetisation, the Benami Act and RERA (Real Estate Regulatory Authority) have greatly altered the standard operating procedures in the real estate industry,” admits Shah. He concedes that both demonetisation and Benami laws had indeed, led to an “increased level of transparency” in the transaction system of real estate properties. By inference, the rules of business have changed post November 8, 2016.

That ground reality is the reason why Shah is convinced that demonetisation would act as a catalyst in the consolidation of the real estate sector. “It will now allow only   genuine players to remain,” says Shah, who is a reputed builder from Ahmedabad. Mumbai-based listed realty firm Sunteck Realty, however, is emphatic that demonetisation has had no effect on it, whatsoever. “Grade A developers like Sunteck Realty continued to launch new projects,” says Kamal Khetan, Chairman and Managing Director of the company.

Bengaluru-based Bijay Agarwal, Managing Director of Salarpuria Sattva Group, echoes similar sentiments. “We did not see any direct impact of demonetisation on our projects across any market, however, we did notice a slowdown in the luxury market for a short period of time,” says Agarwal. According to him the entire residential market went into a “wait and watch” mode after demonetisation. Agarwal points out that “organised players in the sector who have continued to operate with utmost transparency were hardly affected by demonetisation.”

He says he sees two distinct benefits post demonetisation. “One. Absence of cash-transactions have benefitted investors and home-buyers from abroad. They do not have to go through any unnecessary channels to acquire a property in India,” he says, adding, “Two. The sector has become attractive for FDI for long-term investments.”

Developers and experts also say that housing stocks and residential properties will continue to appreciate as an asset class. Khetan of Sunteck Realty, firmly believes that the sector now has more organised players and so, room for healthy competition. “We will see growth and sales volume in the coming quarters,” say he.