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Impact of Demonetization on Indian Real Estate: Home sales jump 32% in a Year

Posted by iremn on April 10, 2018
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It seems that the Demonetization has put a positive impact on Indian Real Estate Market and hance proving all the speculations wrong. After currency ban in India, it was being speculated that the demonetization will hit the already suffering Indian Property Market badly.

However, continuing the uptrend, residential homes sales in the top eight Indian cities saw the biggest jump during this financial year, growing 32% year on year (YoY) during the third quarter on the back of demand for affordable housing.

The eight cities include National Capital Region (NCR), Mumbai Metropolitan Region (MMR), Pune, Bengaluru, Ahmedabad, Hyderabad, Kolkata and Chennai.

The improvement in market conditions is also resulting in the depletion of unsold stock. On a year-on-year basis, the inventory has dropped to 923,283 in the December quarter of this financial year from 956,589 units in the year-ago period.

As per the latest report by Liases Foras on residential real estate market for the third quarter of the current fiscal, “December quarter posted 3% increase in quarterly sales across eight tier-I cities. As compared to Q3 last year, this quarter has shown a 32% increase. However, it has to be noted that in the wake of demonetization, Q3 2016-17 showed uncharacteristically low sales. In comparison with Q2 last year, there is a 9% growth in quarterly sales.”

Except for Chennai, all tier-1 markets have shown recovery. Bengaluru led the recovery with 13% quarter-on-quarter increase in sales followed by Kolkata and Hyderabad with 9% and 6% growth, respectively.

On YoY, maximum recovery was seen in Hyderabad and Kolkata with 69% and 53% growth in sales numbers but they have still contributed to just 11% of the total tier-1 market. The most encouraging growth in absolute numbers was observed in MMR and NCR markets which have shown 42% and 30%, growth respectively. These two markets combined together contributed 49% of total quarterly sales of tier-1 market.

A major jump in the sales on Y-o-Y basis was seen in the less than Rs 25 lakh category with 67% improvement,” read the report.

Here are the reasons, why Currency ban boosted the sales in Indian Real Estate Market: 

Increased transparency with the elimination of unsecured cash transactions:

Post demonetization, there has been an increased transparency in the purchase and payment system of property. The paper or market value of most properties in India until recently was very less as compared to the cash or ‘black’ value. Since cash transactions were unregulated and unrecorded, it was almost impossible for the government to levy taxes on them. Real estate had become a haven for people to park their unaccounted cash. This was causing a steep increase in the property prices earlier.

A shift towards the cashless economy has brought transparency in the valuation system. No one can any longer buy property using cash, which stabilized the market considerably. Also, it enabled the government to easy detect frauds and extremely large cashless transactions. All these factors led to a boost in consumer confidence after the initial shock subsided.

Demand in Affordable Housing Segment:

One of the segments which benefited most from the demonetization drive is the affordable housing segment. Affordable housing came with lower EMIs due to various subsidies and became even cheaper after demonetization. The increase in sales is primarily due to ‘affordable housing’ segment as over 54% of the sales during the third quarter were under the sub-Rs 50 lakh segment. Whereas, the segment of Rs 50 lakh to Rs 1 crore witnessed a 29% contribution to the total sales.

Improved stock market performance and FDI

The Indian real estate sector attracted all-time high foreign investment of US $ 5.7 billion in 2016, despite demonetization (The Economic Times, 2017). The performance of real estate firms on the stock market Bombay Stock Exchange (BSE) improved by 50% during 2016-17, dispelling fears of ill effects of demonetization. A further increase in private equity from foreign and local investors and other institutional investments in the sector pushed for more transactions.

On to More Realistic Prices

Homes are likely to be on the market longer, and in time this will lead to more realistic prices which is good news for consumers who have not been able to afford to buy and stay in rented properties. Most analysts say that the impact of the government’s decisions will be positive in the long term. In the short term, liquidity has been impacted leading to reduced sales volumes. The move has taken the industry by storm, and it will take time for all stakeholders in the sector—brokers, agents, buyers, sellers and developers—to assess the repercussions on their businesses and the decisions they take going forward.



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