Re­alty mar­kets to face pain for later gain

Mea­sures to curb un­ac­counted wealth will im­pact cash flows in the market, putting pres­sure on prop­erty prices in Delhi-NCR, but home­buy­ers will ben­e­fit

HT Estates - - FRONT PAGE - Van­dana Ram­nani

Th e g ove r n m e n t ’ s re­cent move to de­mon­e­tise ₹ 500 and ₹ 1,000 notes will im­pact the real es­tate sec­tor. This in­cludes the re­sale market, com­mer­cial sales and some pock­ets in the pri­mary market largely driven by small de­vel­op­ers, in­vestors rather than end- users who pre­fer to de­ploy ex­cess cash in buy­ing apart­ments or land. This pain, how­ever, won’t last long. The cash flow problems some de­vel­op­ers are likely to face will ef­fect their work­ing cap­i­tal needs and also put pres­sure on prop­erty prices. Real es­tate ex­perts say the cor­rec­tion will be any­thing in the range of 10% to 15% in the pri­mary market and per­haps around 20% to 30% in case of re­sale ( both apart­ments and land) and com­mer­cial prop­er­ties as these as­set classes are seen as a safe haven for park­ing black money.

In the long term though, these mea­sures to curb un­ac­counted wealth will in­crease trans­parency and cred­i­bil­ity in the sec­tor. The set­ting up of a Real Es­tate Reg­u­la­tory Author­ity (RERA) in each state will also bring about in­creased ac­count­abil­ity in the mar­kets.

Also, while the gen­eral mood of a not-so-des­per­ate prop­erty seller will be to wait and watch, these times may ac­tu­ally prove to be a boon for home­buy­ers who can look for­ward to some af­ford­able all-white deals that suit their pocket.

Next year around this time, a dif­fer­ent real es­tate market may evolve as both RERA and Goods and Ser­vices Tax (GST) will be in place by then and the new found-con­fi­dence in the sec­tor may ac­tu­ally give an im­pe­tus to the market. De­mon­eti­sa­tion may lead to huge pres­sure on prices in the short term as there will be cash flow is­sues. The num­ber of trans­ac­tions will be less ini­tially, but it will be good for the medium and long term as clean­ing up of the market would have hap­pened by the same time next year, says Sa­man­tak Das, chief economist and na­tional di­rec­tor – Re­search, Knight Frank (In­dia) Pvt Ltd.

Pankaj Kapoor of Li­ases Fo­ras, a Mum­bai- based real es­tate rating and re­search firm, says that de­mon­eti­sa­tion of these high-value cur­rency notes that are mostly used for re­alty trans­ac­tions may cre­ate dif­fi­cul­ties for the lux­ury market and land trans­ac­tions as the cash com­po­nent ranges be­tween 30% and 50% of the deal value in such trans­ac­tions. Prices in the land seg­ment could see a 20% to 25% cor­rec­tion once black money is out of the equa­tion.

Up­com­ing mar­kets such as Greater Noida West or Noida Ex­press­way where there are peo­ple des­per­ate to sell may also see a price cor­rec­tion of 10% to 15%. Pri­mary mar­kets may also be af­fected as there will be pres­sure on builders to sell un­sold in­ven­tory in mar­kets (with ex­cess avail­able stock) due to cash flow is­sues, even though deals in such mar­kets are pri­mar­ily in white, says Nitin Jain, a bro­ker ac­tive in Noida and Ghaziabad mar­kets.

Plot­ted devel­op­ment, floors (in kothis) may see prices crash­ing by al­most 30% as the cash com­po­nent in such prop­er­ties and com­mer­cial prop­er­ties is much higher.

For com­mer­cial prop­er­ties worth ₹ 1.25 crore, the cash com­po­nent is usu­ally ₹ 50 lakh. Due to de­mon­eti­sa­tion of ₹ 500 and ₹ 1000 notes, this seg­ment may see a cor­rec­tion of 25% to 30%, says Amit Parekh, a bro­ker ac­tive in Noida.

Dhruv Khanna, a Gur­gaon­based re­alty agent, says prop­er­ties hit the most would be those with deals al­ready struck and par t pay­ments made. Un­cer­tainty is lilely to con­tinue for the next six months and this may per­haps be the right time for home­buy­ers to en­ter the market in the next fi­nan­cial year for all-white deals. The long term im­pact is ex­tremely pos­i­tive and a huge con­fi­dence booster for FDI in­vestors

The sub ₹ 1 crore com­pleted, ready-to-move-in prop­er­ties will be the least im­pacted in Gur­gaon as these see max­i­mum end-user ac­tiv­ity. Under- con­struc­tion projects, how­ever, will feel the pain and ex­pe­ri­ence price cor­rec­tion of 10% to 15%, says Khanna. Apart­ments in prime ar­eas such as Golf Course Road and Golf Course Ex­ten­sion where the dif­fer­ence be­tween cir­cle rates and market rates is about 30% may see price cor­rec­tions of 10 to 15% in the short term, he says.

The rental market will feel the heat as liq­uid­ity will be out of the market and those want­ing to sell will be forced to lease their units. “Rental market prices may go down as avail­abil­ity of stock will go up. This will be due to the fact that de­layed stock that was to be com­pleted in Gur­gaon in 2012 is now com­ing into the market and will add on to the ex­ist­ing sup­ply, putting pres­sure on the rental market, which will correct by 5% to 10% go­ing for­ward for the short term,” adds Khanna.

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