The clamp down on black money may have a negative impact on the real estate sector, but it may be just what the doctor ordered for home buyers. For fence sitters waiting for housing prices to correct, this could well be the time to buy a house.
Reduction of cash component in a real estate transaction will encourage more genuine buyers in the secondary market rather than investors who are interested in simply parking their black money. This will eventually lead to deflation in property prices with some experts expecting up to 30% drop in real estate prices in markets such as Delhi NCR. Less than expected sales during the ongoing festive season is yet another reason why discounts are anticipated in the market.
The presence of some other factors have already turned the housing market attractive for end users. Interest rate cycle, for instance, has turned around and is now conducive for housing loans. The interest rate has come off by over 125 bps since 2015 and is expected to drop further through the year. The Real Estate (regulation and development) Act 2016 aims to protect consumer rights and interests, involves greater transparency, higher penalties for delays and defaults, and improvement of accountability of real estate developers.
An inventory pile-up provides good choice for buyers. Residential demand has lagged supply in major cities across India which has led to high unsold inventories. According to Knight Frank, 2015 ended with the lowest number of new launches and sales volumes across top eight cities of India since 2010. While the sales volume during the year was similar to that of 2014, new launches fell sharply by 21%. In contrast, affordability in Indian residential real estate is at a five-year high as income growth over the past five years (10 to 12% p.a.) has outpaced property price inflation (-10 to 10%).
The earliest green shoots are already visible. There has been a 15% year-on-year jump in home sales across top eight cities in the country to 78.2 million square feet in the quarter ended September, making it the best quarter in the past five years.
Data from Liases Foras showed that sales were dominated by the Mumbai Metropolitan Region and NCR that have grown 39% and 11%, respectively, over the previous year. This could just be the beginning of a healthy revival in demand for housing.
Credits ET Realty