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India residential real estate demand slumps amid demonetisation; outlook remains uncertain


Post the government decision to ban Rs 500, 1,000 currency notes, there were expectations that residential real estate demand will come down. But the extent is huge.

In Mumbai Metropolitan Region,  sales have plunged to the lowest in seven years in the October-December quarter, according to consultancy Knight Frank.

While sales halved to 8,617 units, new launches slumped by 77% to 2,617 units.

The picture was not much different in the other top cities in India. The premium end of the market, particularly, has been worst hit in most cities.

Demonetisation has clearly hit buyer sentiments, with many postponing big decisions like buying new homes till clarity emerges on the currency front. Also, many are waiting and watching if banks cut home loan rates further.

But, there is also no denying that lot of deals, at least partially, happened via cash transactions in the sector. Like, paying for parking, for instance, in cash. Many developers, particularly the smaller ones, were up until recently even offering discounts, if a buyer paid partly by cash. Some are learnt to be still doing such cash deals.

With a major portion of the available cash in the economy sucked out by the government, such deals have declined significantly.

The demonetisation move came when the sector was starting to look up a bit after a two year downturn.

There is an expectation that the recent sharp interest rate cuts by banks would help revive end-user demand. But that alone may not be enough.

As long as there is economic uncertainty, consumer sentiments will remain weak. Also, there are other factors, local and global.

RERA comes into effect this year. Once this act is in place, builders won’t be able to pre-sell apartments unless they have all the requisite approvals. That will hurt cash flows at a time balance sheets of developers are already stretched.

Globally too, new US President Donald Trump’s policies will have global political and economic repercussions.

UK voted to leave the European Union last year, but the formal process will only begin this year and that outcome will also impact software exporters and other companies that have a sizeable presence in the UK. This will have direct and indirect impact in India too.

So all in all things don’t look too bright for the realty sector, at least in the first half of 2017.

Prices in the secondary market have already started falling. This will impact primary market deals too.

The developers will only be wishing that prospective buyers fall for the low interest rate bait and help turnaround the market.

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Author:

I am a business journalist by profession and have close watch on equity markets and developments across FMCG, Retail, real estate, auto and information technology sectors in India. When not writing, I am an avid photographer (instagram.com/nachiket.kelkar) and Arsenal FC fan. I also love train spotting.

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