Demonetisation Shook Real Estate But The Industry Looks Confident

Over the last two years, note-bandi or demonetisation would have been the most talked about structural reform. Aimed at purging the economy from the clutches of black money and allied nuisance, the Narendra Modi-led central government claims to have sweeped the system clean altogether. Real estate and gold, two avenues where the incidence of black money is way higher than all other sectors was brought under the radar with stakeholders fearing that the real estate sector, still under the weight of a slump is heading for a doomsday. A year on, the property market has shown that it has confronted the odds, falling, picking itself up and taking the gun right where it pains - the sales.

Today, the industry has survived this test too and stakeholders claim that they have been successful in bringing back the fence-sitters. While number of these wait and watch preachers may not be impressive, the market has in every sense recovered after the blow.

What did demonetisation do for homebuyers?

Well, if you are a genuine homebuyer with aspirations of a 2BHK or a 3BHK, your research for a home that fits your budget would have started years back. You would have all your calculations on paper, weighing the odds of investing in one locality or the other, concentrating on which developer would offer you an attractive price cut without compromising on the quality. Well, such demands often lead to a difficult situation. All those who wanted to invest were looking at a similar kind of product and had been disappointed with the pricing in the market. Many thought prices would come down and the right time to buy would be near. Was that so? One thing was clear, many turned to their research and felt that the right time wasn't coming any soon. This further slowed down the market. The government felt it needed to intervene.

The intervention

Demonetisation claims to have indirectly led 56 lakh additional people under the tax net. Supporters also argue that although majority of cash that was sucked up by demonetisation is back in circulation, now this cash is traceable and this is a major win for real estate.  Moreover, with demonetisation, paper cash temporarily stopped becoming the primary means of trade swinging into use digital modes that have been thereafter very popular among people. Letting people go cash strapped for a while also had a positive side. It curbed artificial inflation to an extent. This did wreck the resale and luxury real estate segments though because homebuyers were not ready to risk it. Also, all the currency that would go into such a purchase would have to be accounted for. In all this and more, the primary market, where homebuyers usually go in for home loans to finance their purchase did see some fair time with the segment not having to reel under the impact of demonetisation.

Reforms teach a lesson

Those who see demonetisation as a necessary intervention also agree that the implementation went somehow, haphazard. Property markets are often sentiment-driven. In pre and post demonetisation phase, other reforms too taught the industry a lesson or two. The year 2016 and 2017 would be remembered as the years of historic structural reforms with demonetisation, RERA, GST, a note or two on benami transactions, insolvency and bankruptcy following one after the other. The impact of these announcements were so effective that in days to follow, rumours about mandory linking of property to one's Aadhar card also surfaced. Stakeholders believe that demonetisation has at least generated a sense of fear amongst ingenuine players, money launderers and black money hoarders. Homebuyers who resort to unfair means will think twice before routing to wayward means of hiding their unaccountable cash.

A paradise for genuine buyers?

Having said all of the above, the financial quarters post demonetisation have been inconvenient for the real estate industry. But a genuine buyer who represents the aspirations of the multitude of Indians is happy today that his seller cannot cheat him, thanks to the various strategies in place. A seller cannot demand unaccounted money, and the market value of a property or the value at which the transaction took place have to be clearly declared. Demonetisation did leave many wiling homebuyers cash strapped for a while but only to infuse the system with greater transparency. Branded developer firms with credibility also managed to stick to their game. 

Thanks to demonetisation, banks too decided to go in for home loan rate cuts helping the buyer spend more and save more. This has been one of the high points for homebuyers in days that followed demonetisation.

Who's out?

Demonetisation also made sure that unscrupulous developers make an exit. The short term investor may be out too, if not for long then temporarily. This is because end-users who had been delaying their purchase for a while now are scouting for the right property. Short term investors are expecting no quick profits in the short run because the market is stabilising and the focus is on affordable purchases than quick flipping. Nevertheless, there are exceptions too. For those of you who wish to make the most this government induced purged business environment, this is the right time to buy.

 Establishing the alternative

While paper currency took backstage, digital mechanisms ushered in and thanks to technology , a more efficient system has caught up with the times. As businesses come online, one can expect greater transparency in the future. With RERA doing its bit, not just your money even business ethics is under scrutiny. It is not just difficult but punishable by law today to deviate from what a broker promises a buyer or what a developer says he will deliver. With the other reforms in place, your property is possibly surrounded by a wall of protection assured by these policies and regulatory frameworks. 

Developer's Corner

Last year, PropGuide reached out to Surendra Hiranandani, CMD, House of Hiranandani for his opinion. He said that the transparency and accountability in the sector had enhanced significantly for institutional investors due to which they are looking at Indian real estate with renewed interest. The ongoing transformation is already witnessing a robust rise in investment inflow from both foreign and domestic institutional investors.

He also added that the long term market dynamics for the sector are positive, especially in the residential market where prices are likely to remain stable over the coming few months. There hasn't been a significant dip in prices in the primary market in the recent past, as margins are very thin, however, there has been some rationalization in the secondary market. 

According to Pankaj Goel, secretary, CREDAI NCR, “The union government initiated the move to demonetise high value currency notes previous year which impacted more or less almost every industry in India. As far as the real estate  sector is concerned the commercial market remained unaffected by demonetisation. Sales volume in the secondary residential market, especially in the luxury segment were bit impacted but now the market has revived up to a good level. Now a days sales volume for the residential market has increased in the suburb of Delhi NCR. The transaction in the mid-segment and affordable housing remained less impacted and buyers preference remained tilted towards the ready-to-move-in units. Moreover, with the implementation of security measures like RERA and GST has transformed the real estate transaction which has boosted the sentiments of homebuyers”.

Saurabh Jindal, JMD, SVP Group says, “The residential market have witnessed dramatic fluctuations over the last one year, due to reasons like demonetisation drive and other key legislations implemented by the centre. In the beginning, there was scarcity of cash flow in the market and hence large number of buyers went off the market. But this resulted in the reduction of property prices, thereby benefiting home buyers. The start of the financial year 2017-18, market get boost and if we talk about the current scenario the sale volume has increased to a good level, so the overall impact of demonetisation was lesser for real estate. Home loan interest rate has been reduced by the banks which is further making an ideal situation for end-users”.

According to Deepak Kapoor, president, CREDAI Western UP, “Demonetisation wave seems to have settled down and the prospect for the residential market looks promising. Apart from notebandi, the realty segment also witnessed several significant policy reforms, such as the implementation of RERA and GST which together impacted the industry. If we talk about in the first few months of post demonetisation – there was temporary slowdown in the overall sales volume. However, a year after the move, realty market seemed to be picking up, on the back of several amendments and low home loan interest rate. Builders fraternity is hopeful as the market movements indicates that there would be price correction in the residential market in next 2 to 3 months as the industry is getting boost by cleaner sources of fund raising”.

Manju Yagnik, vice-chairperson, Nahar Group says, "Demonetisation was a difficult move for many to deal with. However, it has greatly contributed in the standardisation of the pricing in the sector. There is so much transparency now. From a developer standpoint it has immensely helped us in sourcing funding from the banks and we are assured that the source of our funding is genuine. Many people out there believe that demonetisation had an adverse effect on sales, but that's not true. It was the negative sentiment that due to demonetisation the property costs will go down and that's exactly what the people kept waiting for instead of investing. Beyond this it has also helped in creating a cleaner image for real estate."

FM speaks

Finance Minister Arun Jaitley said, "Having undertaken two major structural changes which are extremely important for Indian economy, think the impact being substantially behind us, the early indications for the future look to be positive."

The number game

Hiranandani quotes syndicated reports and  says that the potential employment opportunity in the real estate sector is expected to increase by more than 80 per cent by 2025. The share of the real estate sector in India's GDP is expected to double by 2025. The annual real estate supply in India is also expected to increase from about 3.6 billion sq ft in 2013 to about 8.2 billion sq ft in 2025. Not only will this result in an increase in job opportunities, but it will also have a cascading effect on various ancillary industries which are dependent on the real estate industry. Hence the long term prospects appear highly positive for the sector. Increasing urbanization and the expanding urban fabric of tier II and tier III cities in the country will be the prime drivers for the growth of real estate.

"We need to deregulate the sector to achieve long term success as a major impediment to real estate development in India remains the approval process. The World Bank has ranked us 181 out of 190 countries in Ease of obtaining construction permits Index. We hope the government looks into the same at the earliest as improving its score here is crucial if it has to achieve its overall goals," he adds.