Is the im­pact of note ban on prop­erty mar­kets worse than the 2008 cri­sis?

Mar­kets had recorded a sharp fall then, but had re­cov­ered quickly af­ter rate cuts

Hindustan Times (Chandigarh) - Estates - - FRONT PAGE - Van­dana Ram­nani van­dana.ram­nani@hin­dus­tan­times.com

In­dia an­nounced a ban on ` 500 and ` 1000 notes al­most eight years and two months af­ter the Lehman Brothers de­cided to file for fi­nan­cial bank­ruptcy, im­pact­ing economies around the globe. The worst hit sec­tor then, like now, was the prop­erty mar­ket. Like to­day, both sales and launches of res­i­den­tial units were im­pacted. But was the Lehman cri­sis the worst that the prop­erty mar­ket had ex­pe­ri­enced or is de­mon­eti­sa­tion more painful?

Be­fore the Lehman bomb dropped, In­dia was en­joy­ing 300% growth in res­i­den­tial prices in In­dia, com­mer­cial rentals were get­ting ex­pen­sive by the week and new de­vel­op­ment projects were be­ing launched ev­ery other day. De­vel­op­ers were in a mad rush to con­sol­i­date and con­trol land. Even un­til Oc­to­ber, the de­fi­ance in the sec­tor in In­dia was ap­par­ent, it had dis­re­garded all global macro-eco­nomic sig­nals of the im­pend­ing dis­as­ter.

Things started go­ing down­hill af­ter Novem­ber 2008 – im­plicit dis­counts and free cars given away with prop­er­ties dur­ing Di­wali failed to re­vive the mar­ket, leav­ing stake­hold­ers in the real es­tate sec­tor won­der­ing how long the mar­ket would take to bot­tom out. The lux­ury end suf­fered and de­vel­op­ers were forced to cut prices and fo­cus on end users rather than in­vestors. The sub-prime mess saw home prices fall by al­most 25% in cer­tain mar­kets, sales ac­tiv­ity slowed down by al­most 30%, dis­tress sales were com­mon and hous­ing loans shot up from 7% to 12%. Job cuts in the mar­ket and de­faults on loan re­pay­ments in­creased. Con­fi­dence lev­els dropped and house pur­chase plans were put on the back­burner. The suf­fer­ing had be­gun.

To tide over the cri­sis, some de­vel­op­ers started look­ing at af­ford­able hous­ing and soon oth­ers too joined the band­wagon. A slew of af­ford­able hous­ing launches across the country led to higher ab­sorp­tion month on month. Nearly 39,000 out of 48,500 res­i­den­tial units launched dur­ing the months that fol­lowed across the top met­ros were priced be­low ` 3,000 per sq ft. The av­er­age size of the hous­ing units launched in the pe­riod also shrank by 15% to 30% across ci­ties when com­pared to sim­i­lar priced units launched in early 2008. In Delhi NCR, the size of 2 BHK units be­came smaller by 14% (to 1,080 sqft), while 1 and 3BHK flats shrank by 5% and 12% (to 720 and 1,493 sq ft) re­spec­tively, a re­port by the then con­sul­tancy DTZ (now merged with Cush­man & Wake­field) had said.

Ev­ery as­pect seems fa­mil­iar, no dif­fer­ent from what the re­alty mar­ket is ex­pe­ri­enc­ing to­day. Ac­cord­ing to data made avail­able by Knight Frank In­dia (see box), the year 2008 saw sales vol­umes go­ing down by -27%, in­di­cat­ing neg­a­tive growth. The year 2016 has also pro­jected neg­a­tive growth of -9%. In the fourth quar­ter, af­ter de­mon­eti­sa­tion, sales vol­umes have dropped by 44% and new launches have fallen by a mas­sive 61% year-onyear dur­ing the same pe­riod. Had it not been for de­mon­eti­sa­tion, prop­erty mar­kets would have ac­tu­ally fared much bet­ter.

“The fall in sales vol­umes and new launches has been so se­vere dur­ing the last quar­ter of 2016, that it has brought down the en­tire sec­ond half of 2016 num­bers down by 23% and 46% re­spec­tively com­pared the sec­ond half of 2015,” says a re­port by Knight Frank In­dia ti­tled In­dia Real Es­tate.

“The res­i­den­tial mar­kets of the top eight ci­ties in In­dia had started off on a pos­i­tive note in 2016 with the first half of the year wit­ness­ing a 7% jump in sales vol­umes. The third quar­ter sales vol­umes also showed pos­i­tive growth on the back of the start of the fes­tive sea­son.

The over­all pos­i­tiv­ity was due to a host of fac­tors such as reg­u­la­tory en­vi­ron­ment, ap­proval of the GST bill and amend­ments to REITS,” says Ra­jeev Bairathi, ex­ec­u­tive di­rec­tor and head cap­i­tal mar­kets, Knight Frank In­dia.

The de­mon­eti­sa­tion an­nounce­ment on Novem­ber 8, 2016 played spoil­sport.

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