Buy­ers hope to get more dis­counts

HT Estates - - HTESTATES - HT Es­tates Cor­re­spon­dent Van­dana Ram­nani

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 con­struc­tion 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. End users are ex­pect­ing dis­counts and hop­ing that white money has more cur­rency in the cur­rent sce­nario. De­ci­sion­mak­ing may be slow, but ac­tual users are still around, say real es­tate ex­perts.

Khushru Ji­jina, man­ag­ing d i r e c t o r, P i r a m a l F u n d Man­age­ment, be­lieves that in the near term, de­mon­eti­sa­tion is likely to fur­ther im­pact an al­ready muted buyer sen­ti­ment across most ma­jor mar­kets. This is likely to be re­flected across both ve­loc­ity and pric­ing, al­beit in a more lim­ited way for Tier -1 ci­ties and end-user af­ford­able hous­ing when com­pared to the smaller towns and ci­ties and the lux­ury seg­ment.

“How­ever, we be­lieve that the medium to long term im­pact of de­mon­eti­sa­tion is largely pos­i­tive es­pe­cially for the end-user and for fi­nan­cial in­vestors such as our­selves. We have al­ready seen this trend re­flected in the im­me­di­ate af­ter­math of de­mon­eti­sa­tion even as sales of well planned, well ex­e­cuted and well- priced res­i­den­tial units con­tinue to take place. Cou­pled with RERA, this ac­tu­ally fast tracks the ‘in­sti­tu­tion­al­i­sa­tion’ of a sec­tor that has al­ready been con­sol­i­dat­ing. Given the im­me­di­ate im­pact on sen­ti­ment, mar­kets will likely nor­malise over a three to six month pe­riod as we be­lieve that Tier-1 de­vel­op­ers and those who al­ready em­braced investment grade pro­cesses and gov­er­nance stan­dards will emerge stronger and the aver­age/smaller/spec­u­la­tive de­vel­op­ers will be forced to con­sol­i­date quicker than other­wise ex­pected.”

The mar­ket is in re­set mode and de­mon­eti­sa­tion is only go­ing to trans­form it into an ef­fi­cient end-user mar­ket. Post de­mon­eti­sa­tion, there have been cases of some de­vel­op­ers es­ca­lat­ing prices and ac­cept­ing some por­tion of the pay­ment in cash. “Most can­cel­la­tions have been from in­vestors who are now des­per­ate to get out of deals signed ear­lier. As many as 35% are can­celling deals signed ear­lier in cases where the cash el­e­ment de­ployed was huge, es­pe­cially i n case of plot­ted de­vel­op­ments and r e s a l e p r o p e r t i e s , ” s ay s Pankaj Kapoor of Li­ases Fo­ras.

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