The demonetisation of the Rs1,000 and Rs 500 currency notes is a bold step by the government aimed at removing the parallel economy running on unaccounted-for cash accumulated through tax evasion. The move is likely to lead to a fall in property prices but that may not be enough to trigger massive sales due to uncertainty in the market, says a report.
“In the short term, we expect transaction volumes to go down and a downward pressure on prices, especially in land and secondary market sales in residential and commercial real estate,” says the report by international consultancy Colliers, titled Real Estate Sector: Aftermath of Demonetisation. Some properties are likely to be available on sale in the secondary market at a further discount due to the financial stress, says the report. In the long run, these measures along with the Real Estate Regulation and Development Act, 2016, (RERA) will align the property sector to the global standards of doing business, resulting in more fund flow from institutional investors, banks and higher unit sales.
However, it should significantly reduce liquidity in the market in the near term and should lead to an immediate period of deflation, as money becomes dearer.
“We expect fall in inflation rates in the next three to 12 months. This should trigger RBI to reduce interest rates in the next cycle by about 50 basis points. The reduction in bank rate will put pressure on the banks to reduce home loan and construction financing rates. The effective price of real estate to the buyers should thus reduce, but not enough to trigger massive sales due to uncertainty in the markets. We expect some properties to be available on sale in the secondary market at a further discount due to the financial stress,” the report says.
Primary market sales will continue to be subdued as buyers will prefer secondary distressed property over primary markets. More incentives are likely to be given to buyers instead of cut in prices of residential units in the primary market.
“We are anticipating the usual resistance to lower prices. As RERA starts kicking in, it shall make the business environment more stricter,” it says. Along with other regulatory changes such as the amendment of Benami Transactions (Prohibition) Act, Goods and Services Act (GST), and RERA, this amendment is a step in the right direction towards improving transparency in realty transactions.
Credits Hindustan Times