Real estate sector will need to be formalised

Top officials of several real estate developers across the country – from Chennai to Kolkata, from Hyderabad to Pune and Mumbai to Bangalore and the National Capital Region – say that even though the market took a big hit post demonetisation they foresee significant long-term gains, expecting all future deals to be through banking channels.

While black money has not been eliminated from the sector, it has become difficult to execute cash transactions as of now. They feel that demonetisation, along with the new real estate regulatory Act and the Benami Properties Act, would help in eradicating the practice of parking black money in real estate.

States are yet to revise guidance values or circle rates post emonetisation, but may have to soon consider lowering the rates to reflect market sentiment.

"Property sale in both primary and secondary markets were affected during November-December due to demonetisation as consumers postponed their buying decisions not only in real estate but across all the sectors,” realtors' apex body CREDAI president Getamber Anand said, reports PTI.

Sales in the primary market have started to improve, with banks lowering interest rates on home loans, he said, adding that it will take some time for revival in the secondary market where buyers need to reengineer investment strategy.

VBHC MD and CEO Ravi Ramu said: "Demonetisation and digitisation are seismic events for the Indian real estate, especially housing. Many of the ground rules have changed."

"The acquisition of land, the funding of construction, the sources of finances of homebuyers, the methods of payments to construction workers and suppliers, and other aspects will perforce require to be entirely formalised and streamlined," he added.

Top developer DLF's CEO Rajeev Talwar said the real effect of demonetisation will be that secondary sales would also become like primary sales and transactions will happen through banking channels. “Real estate will become totally transparent,” he added.

According to Knight Frank, which tracks the primary residential market of eight big cities, housing sales fell by 44 per cent during October-December 2016 at nearly 41,000 units compared with the year-ago period while new launches dropped by 61 per cent. The Delhi-NCR market, which was already facing demand slowdown and huge delays in project completion, saw the highest fall in housing sales during October-December at 53 per cent.

Mumbai saw a 50 per cent decline in fourth quarter sales, Bangalore 45 per cent, Ahmedabad 43 per cent, Hyderabad 40 per cent, Pune 35 per cent, Chennai 31 per cent and Kolkata 20 per cent. The fall could have been steeper but for high festive sales in October, days before the demonetisation was effected.

"The Indian government's demonetisation move on November 8 brought the market to a complete standstill. Against this backdrop, developers refrained from announcing any new launches and buyers turned extremely cautious before committing on purchases," the Knight Frank India report said.

Bangalore-based Sobha, the only company to have reported its sales bookings for the October-December quarter so far, said that its sales bookings fell by 22 per cent at Rs 373.2 crore against Rs 478.3 crore in the year-ago period.

On the impact on the secondary market, Knight Frank's Samantak Das said: "The resale market is under tremendous pressure after the demonetisation move. It will take two-three quarters for the resale market to witness some uptick in sales. The deals will be much more transparent now."

Asked whether black money in realty will be completely eliminated post notes ban, CBRE chairman (India-South East Asia) Anshuman Magazine said: "While it is still too early to gauge the full impact of the demonetisation drive, we believe that it is a bold step towards bringing in transparency into the sector and boosting consumer sentiment and investments in sector."

JLL India's newly-appointed country head Ramesh Nair feels that it cannot be said with certainty that the problem of black money has been completely eliminated from the sector.

"Cash was seen to be involved in certain segments of luxury housing and with smaller developers as also with the secondary housing market. New measures have made it difficult to undertake cash-driven transactions and there is a greater acceptance of undertaking clean transactions," he said.

Cushman & Wakefield noted that the property sector has been a safe haven for unaccounted money due to the unorganised nature of the industry and transactions in the secondary housing market and land deals had a high component of cash involved.

However, it said that "since the government announced demonetisation, cash payments in such kind of transactions have been eliminated to a large extent. The difficulty in making cash payments has resulted in slow sales, especially for those developers who relied heavily on cash transactions".

Stating that demonetisation has propelled India towards a digital economy, Tata Housing MD and CEO Brotin Banerjee said: "This will further enhance the manner in which real estate is transacted – cleaner and more transparent transactions in the industry, helping both developers and consumers." Low interest rate would give the real estate sector a boost by escalating sentiment and demand over time, he added.

Mumbai-based realty firm Hiranandani Group CMD Niranjan Hiranandani said the secondary market would be impacted. "They will have to migrate to a system where cheque payments will comprise a large component, if not fully, of their dealings."

SARE Home MD Vineet Relia said that there has been a decline in property registrations post-demonetisation. "State governments are considering revision in the guideline values to control the impact and Delhi government has already formed committees to rationalise the circle rate," he added.

Bangalore’s leading developer Puravankara's MD Ashish Puravankara said demonetisation would have a positive impact on real estate over time. "This move alters the macros of the economy due to higher liquidity, resulting in lower inflation and cost of borrowing. This would lead to interest rate sensitive sectors like real estate to expand its growth through high sale volumes, in a totally new environment," he added.