Retail and demonetisation
The construction sector is likely to be hit by demonetisation in the short run 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, says a Ernst and Young note encapsulating the impact of demonetisation on the real estate and construc- tion sector.
This could lead to delay in completion of projects, thereby putting pressure on the supply side.
As far as the commercial real estate sector is concerned, 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. However, it could be impacted by other factors such as US election results and the resulting impact on outsourcing, as well as the reduction in supply due to construction-related delays.
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, says the note.