Demonetisation to dampen real estate demand

Demonetisation to dampen real estate demand
18/11/2016 , by , in News/Views

Demonetization is expected to further dampen demand and negatively impact prices in the real estate sector, which has been lacklustre the past three-four years due to various factors, said Care Ratings in a report.

The ratings agency stated that demand is expected to decline as the Centre’s move would lead to lower liquidity in the hands of potential buyers of the sector which is infamous for hoarding unaccounted money.

The construction progress is likely to get hampered as buyers of under-construction properties, who pay in instalments or stage payments to builders as per contractual Builder Buyer Agreements, may now have lower liquidity leading to lower collections by developers. “The routing of black money into real estate sector which was creating demand and supporting property prices is largely going to dry up,” said Care Ratings.

The agency said that demonetization will lead to lower collections in the form of customer advances as projects in early stages of construction are mostly dependent on these advances for construction progress and debt servicing.

The agency said that purchases of the under-construction properties generally took place at the initial launch stages or at early stages of construction, where buyers have enough cash flow to pay the first few instalments and sell it in the secondary market much before the full completion of the project. These speculators make a gain from the likely price rise in the projects as they near completion.

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