When the demonetization move was announced in November last year, it took the nation by storm. Markets went into a tizzy and quite literally every sector was impacted. It has been little over a year now and the dust has settled, with most of the consequences that were part of the fall-out now having been resolved. Every sector has now found their moorings and so too the real estate sector. Let’s take a look at how realty has fared in the past year of demonetization.
In the same vein, Mr. C N Govindaraju, Chairman & Managing Director, Vaishnavi Group feels that overall, it brought down customer confidence and comfort levels with conflicting reports on residential real estate pricing. “This resulted in a reduction in the sales of residential apartments and consequently had a direct bearing on developer cash flows leading to a slowdown in progress of projects and deferment of new launches”, he says. Though he does add that the one positive outcome of demonetization was that the market began increasingly moving towards an end-user segment.
In the Face of Unprecedented Changes in Scenario
While it may seem that real estate was not affected too much by the demonetization move, Mr. Suresh Hari, Vice President, CREDAI – Bengaluru believes that what actually impacted the industry were customer delays in making payments and closing deals. He says, “The outcome of demonetization was not immediately visible to people and the doubtful situation was compounded with implementation of RERA and GST. Though all three are good for the economy, the consequences of its implementation initially caused drastic changes. We call this as change maker year and the long term benefits are expected to be phenomenal”.
Mr. Ashish R Puravankara, Managing Director Puravankara Limited attributes Bengaluru stability to the unique trilogy of steady economic activity, end -user residential market and a high percentage of the white collar migratory population. “In fact,” he says “overall Bengaluru’s real estate market, post the initial lull, witnessed renewed consumer confidence in the quarter of January –March 2017. With 80% of the clientele being the end user and along with realistic (real estate) pricing, Bengaluru market is surging ahead towards better and brighter times in the coming future”.
As a direct result of demonetization, Mr. Farook Mahmood, CMD Silverline Realty and World President FIABCI,believes that sale of land came to a standstill. “Apartment sales were affected by about 30%” he says.
It would be safe to say that in general, primary residential markets and projects by credible builders with strong, transparent corporate governance were not impacted. Most A- grade builders, have all their transactions channelled through proper and legal channels and institutions, right from land acquisition to home loans for buyers, and this is what helped them tide over.
With RERA being implemented, the challenge became to register ongoing projects. Due to delay in confirmation of registration, customer connect was considerably delayed. Marketing continued with filing applications, however many people were hesitant to proceed due to various provisions of the Act and its uncertainty. Both Central and State governments have been approached by organizations, in this regard, to request a balanced approach in implementing the Act.
GST changes are expected with reference to certain high rates on items that are consumed in real estate. There is also a demand for the removal of stamp duty on real estate for first sale and to have it instead be in line with what applies when shares are traded in stock market. Customers currently end up paying multiplicity of taxes on real estate
Post demonetisation most banks were flush with cash and that paved the path for lower home loan interest rates, which have been the catalyst that made some fence sitters take the next step. Mr. Ashish feels that the market is gearing towards consolidation by the larger players while smaller players seeking partnerships and JDs. The future is ripe for the organised players with a robust governance system in place.
And Now, Going Forward
The markets have stabilized and are now more realistic. Mr. Govindraju finds that customer sentiments have improved. “This is a very good time for prospective customers to invest in their dream home as we expect prices to gradually show an upward trend,” he says. “Demonetization has helped in stabilization of the economy which in turn gives prospective customers the much needed confidence to invest in one of the most important necessities for a family- a home”.
Mr. Farook on the other hand feels that demonetization did really not help the industry in areas of excessive inventory and lack of availability of liquidity in the market. “There will be cost escalation because of the new tax structure and demonetization side effects,” he predicts. “The market will hopefully change once everything settles down. After 2nd quarter of 2018 markets will brighten up. The election results will be out and the side effects of demonetization would have worn out by then. This is good in the growth of the country, and will have positive effects on the economy in the near future”.