Indian Realty to Remain Guarded From Demonetisation Pangs

Indian Realty to Remain Guarded From Demonetisation Pangs
10/01/2017 , by , in News/Views

M P Ahammed, Chairman, Malabar Developers

The greater impact of the demonetisation on the realty sector was felt not on the ground or in the prices of properties, but in the minds of the existing and potential customers. A smokescreen has been created, mainly because of the hostile reviews that followed from the experts and analysts. This could be also an attempt to lure the potential customers and money away from the real estate sector to other sectors and financial products.

This fear psychosis, aggravated by the liquidity crunch, prompted the people to adopt a `wait and watch’ approach, which must have impacted the sales a little in November and would continue through December. But, this should not prolong beyond three months, if one were to make a realistic analysis.

In fact, we saw a slump in the sales of units even before the demonetisation step. A recent report by PropEquity Research said that the housing sales fell 22 percent in eight major cities to 33,304 units during the September quarter, due to a decline in end-user demand. Only the empirical data for November and December can tell us how this downward graph was further impacted by demonetisation.

If you look at the genuine demand for housing and the gap with the supply, there is no reason to get worried about a mid-term or long-term impact of demonetisation. Housing is one of the basic needs and no more merely an aspiration. Reports suggest that urban housing demand alone comes around 42 lakh units during 2016 to 2020 and the expected supply in the top eight cities would be only 10 lakh.

The scenario about lower income group is still starker. The estimated demand is for 19.8 lakh units by 2020 whereas the supply by private players would just be 25,000 units. In the case of middle income group housing, the demand is about 17 lakh in the eight cities and the supply could be maximum 6.5 lakhs.

And we need to also look at the genuine demand in the tier II, tier III cities and smaller towns. It is the dream of every homeless to own a house while those who possess studio apartmentsalways wish to upgrade to apartments with two bedrooms. So, how can we disregard this genuine demand in the market by citing demonetisation?

On the other hand, there are several positive takeaways for the move that comes close on the heels of RERA (Real Estate Regulatory Act). Banks now have been adequately recapitalised and it will pave way for a cut in interest rates. It means quality credit will be available not just for the developers to finish their projects but also for the customers. A two percent cut in the rates will translate into 15 percent saving in EMIs which will be big push for the buyers.

Another key positive impact will be the impetus for affordable housing. The government is already on a mission to accomplish housing for all by 2020. Flush with cash on account of swelling deposits under its sway, the government will be in a better position to work towards this goal, along with its focus on infrastructure.

The biggest gain of the move is a possible correction in the realty sector. Firstly, there is a strong luxury biasin our industry as real estate becomes an investment tool. Notwithstanding the government relief and sops under the 2020 vision, we did not see any big shift in the urban areas towards small-sized apartments. This lopsided demand for high and luxury housing can change for the better.

Another soothing factor will be a correction in the prices as cartelization or the manipulation by the broker community will cease to exist. Many of the prevailing malpractices could be reduced, too.

Last but not least, I will not subscribe to the argument that prices will go down drastically in the sector in the coming months. No one would prefer to sell his land or apartment at a lower price or without a respectable appreciation, whatever be the external or internal factors.

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