BENGALURU/MUMBAI: With the government’s clampdown on black money, property brokers have started getting calls from their clients to keep their deals on hold, at least for now. Investors, who meant to close their deals with the cash component, would much rather wait now, given the uncertainty.
“It’s obvious that the deals structured earlier with the cash component will not go through now. Some buyers are asking sellers to accept old notes, but sellers aren’t ready for this and are now asking the entire payment to be made in cheques. A lot of deals have been put on hold and many may also get cancelled,” said Yashwant Dalal, president of the Estate Agents Association of India.
Enquiries from brokerage firms across the country too have dropped by at least 20% in the past week alone, as brokers fear that sales of residential flats may fall by around 40% due to the demonetization drive. “These are tough times,” said BM Pounacha, a Bengaluru-based independent property broker. “I have not lost any deals yet, but investors are adopting a wait-and-watch approach, anticipating prices to fall,” he said.
Real estate, once a booming business for brokers, had been reeling under the impact of slowdown for over a year now. Project delays and a severe liquidity crunch in the market seem to have hit the commissions of brokers across the country with many small players shutting shops. “The real estate sector is headed for tough times with transactions drying up. Over the next six to nine months, we will see a significant impact on the sector as people recalculate their savings,” said Nishant Singhal, director – strategy, Investors Clinic.
What’s worse, any hope of a demand resurgence has been dampened now with the currency ban. While primary residential markets that depend on end users may not take a big knock, secondary residential sales that rely heavily on black money is likely to be severely affected. “There will be a price correction in the secondary market in the coming quarters due to the liquidity crunch, leading to price correction in the primary market,” said Singhal.
On the other hand, investors who had bought property earlier to convert their black money are back in the market to exit even with a 10-20% discount, fearing action under the amended Prohibition of Benami Property Transactions Act, 1988. However, home buyers with legitimate income have begun to make discrete enquiries, hoping for discounts in the primary market. While big developers are yet to offer such sops and are sticking to their earlier incentives such as payment schemes, small developers are offering discounts between 8 and 10%.
Troubles of small developers, who were already facing the liquidity issue, have increased as the informal source of funding has dried up following the government’s decision to ban higher denomination currency notes. Some of them have even started offering discounts to manage the liquidity situation. “Customers’ advances are the best funding option available in this kind of scenario. We have no option but to offer discount as genuine home buyers are not accepting the current rates,” said a developer operating in Navi Mumbai. “But after offering a discount of around 10%, we are not giving other incentive schemes like the deferred payment plan.”
A Knight Frank India report shows that new launches in the country’s top eight property markets fell 9% year-on-year during the six months to June 30 to less than 107,120 units, the lowest in three years.
According to Ashwinder Raj Singh, CEO – Residential Services, JLL India, primary market, or the market formed by projects by credible developers, in the top 8 Indian cities will remain more or less unaffected. This is because buyers into such projects take home loans or finance route to buy their homes, and deals are done through proper legal channels. “There might be an impact on quite a few projects in tier-2 or 3 cities where cash has played a role even in primary residential sales. However, the turmoil in this segment will settle down in a short period of time,” he said.
Credits ET Realty