Property market, long considered a black money safe haven, seems to have taken a big hit from demonetization, with developers seeing their sales drop by about 50% in the last three months and now pinning their hopes on buyers coming to market with ‘white money’. The genuine buyers in the residential market, on the other hand, appear to be holding back their purchase plans on hopes that the interest rates would fall further and the property prices would plunge post demonetization, which some see as a ‘cleansing’ of a sector infested with illicit funds.
As per the industry data, the secondary or resale market, where maximum black money typically gets parked, has been worst-affected as transactions almost dried up, barring some interest in marque properties, due to paucity of cash after scrapping of old Rs 500 and Rs 1,000 notes. The registration of properties also saw a decline. In the process, developers are estimated to have incurred a revenue loss of Rs.22,600 crore because of the cash ban while state governments suffered a notional loss on stamp duty of Rs 1,200 crore, as per property consultant Knight Frank India.
Top officials of several developers across the country — from Chennai to Kolkata, from Hyderabad to Pune and Mumbai to Bengaluru and entire national capital region — admitted that the market took a big hit post demonetization though they foresee significant long-term gains, expecting all future deals to be through banking channels. However, many developers and property consultants also said it is too early to say that black money has been completely eliminated from the sector though it has become exceedingly difficult to execute cash transactions as of now. They feel that demonetization, along with the new real estate regulatory Act and the Benami Transactions Act, would help in eradicating the practice of parking black money in real estate to a great extent and improve the industry’s image.
States are yet to revise guidance values or circle rates post demonetization, but may have to soon consider lowering the rates to reflect market sentiment. “Property sale, in both primary and secondary markets, were affected during November-December due to demonetization as consumers postponed their buying decisions not only in real estate but across all the sectors,” realtors‘ apex body CREDAI President Getamber Anand told PTI.
Sales in the primary market have started to improve, with banks lowering interest rates on home loans, he said, adding that it will take some time for revival in the secondary market where buyers need to reengineer investment strategy. Top developer DLF’s CEO Rajeev Talwar said the real effect of demonetization will be that secondary sales would also become like primary sales and transactions will happen through banking channels. “Real estate will become totally transparent,” he added.
According to Knight Frank, which tracks primary residential market of eight big cities, housing sales fell by 44% during October-December 2016 at nearly 41,000 units compared with the year-ago period while new launches dropped by 61%. The Delhi-NCR market, which was already facing demand slowdown and huge delays in project completion, saw maximum fall in housing sales during October-December at 53%. Mumbai saw 50% decline in fourth quarter sales, Bengaluru 45%, Ahmedabad 43%, Hyderabad 40%, Pune 35%, Chennai 31% and Kolkata 20%. The fall could have been steeper but for high festive sales in October, days before the demonetization was effected.
“The Indian government’s demonetization move on November 8 brought the market to a complete standstill. Against this backdrop, developers refrained from announcing any new launches and buyers turned extremely cautious before committing on purchases,” the Knight Frank India report said. Bengaluru-based Sobha, the only company to have reported its sales bookings for the October-December quarter so far, said that its sales bookings fell by 22% at Rs 373.2 crore against Rs 478.3 crore in the year-ago period.
On the impact on the secondary market, Knight Frank’s Samantak Das said: “Resale market is under tremendous pressure after the demonetization move. Besides, traction for some marque properties, there were hardly any transactions,” he said. “It will take 2-3 quarters for the resale market to witness some uptick in sales. The deals will be much more transparent now.”
Asked whether black money in realty will be completely eliminated post notes ban, CBRE Chairman (India-South East Asia) Anshuman Magazine said: “While it is still too early to gauge the full impact of the demonetization drive, we believe that it is a bold step towards bringing in transparency into the sector and boosting consumer sentiment and investments in sector.” JLL India’s newly-appointed Country Head Ramesh Nair feels that it cannot be said with certainty that the problem of black money has been completely eliminated from the sector. “Cash was seen to be involved in certain segments of luxury housing and with smaller developers as also with the secondary housing market. New measures have made it difficult to undertake cash-driven transactions and there is a greater acceptance of undertaking clean transactions,” he said.
Cushman & Wakefield noted that the property sector has been a safe haven for unaccounted money due to the unorganised nature of the industry and transactions in the secondary housing market and land deals had a high component of cash involved. However, it said that “since the government announced demonetization, cash payments in such kind of transactions have been eliminated to a large extent. The difficulty in making cash payments has resulted in slow sales, especially for those developers who relied heavily on cash transactions”.