Disruption on real estate from demonetisation is only about to get worse
Disruption on real estate from demonetisation is only about to get worse
Deep discounts to be expected from second-tier developers
India’s demonetisation campaign will come at a hefty cost to real estate sales this year, Fitch Ratings warned in a report released this week.
The ratings agency predicted that between 20 and 30 percent of property sales this year would suffer as a result of the sudden withdrawal of bills in denominations of 1,000 and 500 rupees from currency.
“The worst downturn in home sales is likely to occur in the first half of 2017,” the report stated. “Demand is likely to recover moderately in the second half as festive season approaches, and because banks have cut interest rates on home loans by 50-60 basis points over the last 12 months to multi-year lows.”
Prime Minister Narendra Modi predicated the widescale ban on the banknotes on curbing corruption across the subcontinent. The banknotes are commonly stashed away as undeclared wealth, depriving government coffers of millions in taxes, and used in many illicit activities.
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“Demonetisation has made it harder for home buyers to use undeclared wealth for property buys,” the agency noted, citing research by property consultancy Knight Frank.
The number of home sales in the country dropped 44 percent year-on-year in the fourth quarter of 2016, during which Union Government announced its demonetization campaign. The volume of new unit launches also descended by 61 percent during the same period.
While home-builders such as Lodha and IBREL are expected to be insulated from this downturn, their second-tier counterparts are likely to grow desperate, offering discounts of around 25 to 30 percent to entice buyers.
Construction is expected to be one bright spot, however. “We understand that most homebuilders have been able to work around practical issues related to making payments to suppliers and contractors, and that construction has since resumed,” Fitch reported.
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Source: Property Report