De­mon­eti­sa­tion to lead to trans­parency in fu­ture

Hindustan Times (Chandigarh) - Estates - - ESTATES - HT Es­tates Cor­re­spon­dent ht­es­tates@hin­dus­tan­times.com

In the medium to long term, de­mon­eti­sa­tion and mea­sures such as the Real Es­tate Reg­u­la­tory Act, GST and Be­nami Prop­erty Act should lead to greater ma­tu­rity and trans­parency both in pro­cesses and val­u­a­tion, along with price cor­rec­tions. At the same time it is ex­pected to re­move devel­op­ers and par­tic­i­pants with ques­tion­able rep­u­ta­tion and mo­tives, pos­i­tively im­pact­ing the sec­tor, says an EY note en­cap­su­lat­ing the im­pact of the ` 500 and ` 1000 note ban.

Con­struc­tion: The con­struc­tion sec­tor is likely to be hit by de­mon­eti­sa­tion in the short run (less than three months) be­cause a ma­jor­ity of labour­ers do not have ad­e­quate ac­cess to the bank­ing sys­tem in the form of ac­counts, cou­pled with the fact that de­mon­eti­sa­tion has re­stricted the amount of cash that con­trac­tors can dis­pense to labour­ers. This could lead to de­lay in com­ple­tion of projects, thereby putting pres­sure on the sup­ply side.

Real es­tate: The im­pact of de­mon­eti­sa­tion on the real es­tate sec­tor in the short run seems to be neg­a­tive, which is ev­i­denced by the fall in the NIFTY Re­alty In­dex by over 12% in the week of de­mon­eti­sa­tion. How­ever, the im­pact of de­mon­eti­sa­tion on the sec­tor needs to be un­der­stood in the con­text of the sub seg­ments of the sec­tor:

Res­i­den­tial: Over the past few years in most mar­kets, the pri­mary sale seg­ment has been in­sti­tu­tion­alised through the use of bank­ing fi­nance by buy­ers to fund pur­chases, sig­nif­i­cantly low­er­ing the cash com­po­nent in­volved in the seg­ment. Ac­cord­ingly, the im­pact of de­mon­eti­sa­tion on this seg­ment should be lim­ited, es­pe­cially in tier-1 mar­kets and among large devel­op­ers. How­ever, there could be some neg­a­tive im­pact in tier-2 and 3 ci­ties and on smaller devel­op­ers, where the cash com­po­nent plays a role in pri­mary trans­ac­tions.

The sec­ondary sales or re­sale seg­ment, es­pe­cially in in­vestor mar­kets such as the NCR and the western re­gion, where the cash com­po­nent of trans­ac­tion is high, could be im­pacted neg­a­tively, lead­ing to a sig­nif­i­cant drop in the num­ber of trans­ac­tions. Ex­pect a price cor­rec­tion in such ar­eas too. Com­mer­cial real es­tate: The cash com­po­nent in the com­mer­cial real es­tate seg­ment is min­i­mal, as leases are well doc­u­mented and in­sti­tu­tion­alised. There­fore, the im­pact of de­mon­eti­sa­tion per se should be min­i­mal on this seg­ment.

Re­tail real es­tate: Leases in the re­tail seg­ment are typ­i­cally a mix of min­i­mum guar­an­tee and rev­enue shar­ing. The re­tail real es­tate mar­ket can be bi­fur­cated into lux­ury malls and mass re­tail malls. The lux­ury seg­ment is likely to be af­fected neg­a­tively be­cause of the high use of cash in the seg­ment and hence there could be down­ward pres­sure on rentals in lux­ury seg­ment malls.

Land sales/leas­ing: Land trans­ac­tions in the form of joint ven­tures or joint de­vel­op­ment or through cor­po­rate di­vest­ments should be min­i­mally af­fected by de­mon­e­ti­aa­tion given that they are largely in­sti­tu­tion­alised and in­volve lim­ited use of cash. How­ever, di­rect land deals, es­pe­cially those that com­prise agri­cul­tural l and trans­ac­tions, are likely to be im­pacted neg­a­tively and sig­nif­i­cantly by de­mon­eti­sa­tion. There is strong like­li­hood of a slow­down in such trans­ac­tions along with price cor­rec­tions.

De­mon­eti­sa­tion will lead to greater ma­tu­rity and trans­parency in the real es­tate sec­tor. ISTOCK

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