The Centre’s decision to demonetise Rs.500 and Rs.1,000 currency notes will have a major impact on the country’s real estate sector, which accounts for a majority of cash transactions.
Shares of leading developers such as DLF and IndiaBulls Real Estate fell as much as 18 per cent on the bourses on Wednesday.
“We can expect up to 30% drop in land and property prices over the next 12 months,” said Rajesh Krishnan, MD & CEO, Brick Eagle Capital Group, a private equity and land-banking firm.
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“This is great news for the affordable housing sector. The cash component in affordable sector is typically minimal as buyers require home loans for up to 90 per cent of the property price. Hence, demand in the affordable housing sector will not be impacted,” said Mr. Krishnan.
The Centre’s decision may lead to a sharp correction in realty prices but at the same time liquidity concerns for the builders, resulting in delays in construction in the short to medium-term.
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Anshuman Magazine, chairman, India & South East Asia, CBRE, said that land prices are likely to be impacted, as the cash component is most prominent for land transactions.
“The land transactions and/or sale of plots are expected to dip in the short-term, especially in the unorganised real estate segment. Transactions in the secondary market are also likely to be impacted negatively-especially in Tier II/smaller cities,” said Mr. Magazine, who also believes that this move is likely to exert downward pressure on capital values, which is expected to result in increased affordability (particularly for the housing sector) in the long run.
Anuj Puri, chairman, JLL India, said: “It will affect builders largely in tier three towns, where cash transactions are more prevalent.”
Mr. Magazine said, in the short-run, there might also be liquidity concerns for the real estate and construction sector, especially when it comes to smaller development firms (mostly unlisted).
Getamber Anand, president - CREDAI National said only the fly-by-night players in the sector will be affected. “The organised part of the RE industry has always been compliant and it is only the unorganised fly-by-night players who will face the brunt.”