The worst casualty of November’s note ban is the real estate sector with all eight major cities, including the most resilient Bengaluru, witnessing a major crash in sales. Sales volumes dropped by 44% year-on-year (y-o-y) and new launches fell by a massive 61%, says a new report by Knight Frank India.
At 40,940 units, the fourth quarter 2016 sales volume is at its lowest quarterly level since 2010, much worse than previous average quarterly sales of more than 90,000 units in 2010. New launches fared worse with just 24,300 units in the fourth quarter of 2016, which is not even one-fifth of the peak quarterly level observed during 2010, says the sixth edition of the half-yearly report , India Real Estate.
The fall in sales volume and new launches was so steep during the fourth quarter of 2016 that it brought down the entire year’s numbers down by 23% and 46% respectively, compared to the second half of 2015. Therefore, 2016 replaces 2015 as the worst performing year in terms of sales volume in the recent history - with sales volumes in the top eight cities dropping by 9% in 2016 to 244,680 units from 267,960 units in 2015, says the report.
Demand and supply growth in the NCR , the most affected market, slowed down by 29% and 73% respectively whereas the MMR market lost its recovery mode with launches and sales plummeting by 53% and 26% respectively, the report says.
New launches in NCR dwindled to 26,735 units in 2016, registering a year-on-year drop of 58% from 2015. Sales registered a year-on-year drop of 18% and the festive season failed to infuse life in the dull market as sales declined to 40,000 units.
Also, the drop in sales volume during the fourth quarter of 2016 due to the demonetisation move resulted in a massive notional revenue loss (registrations, stamp duty charge) of more than Rs 22,600 crore to the real estate industry across the top eight cities. In other words, if the Government of India had not taken the demonetisation move, the residential segment would not have suffered this loss. Similarly, the notional loss to the various state governments on stamp duty collection has been in excess of Rs 1,200 crore during the last quarter of 2016.
Uncertainty is likely to continue in the next quarter. It will be important to see how developers recalibrate their businesses to the changing environment and whether buyers capitalise the opportunity of various reforms and change their status quo position of ‘wait and watch’.
The office market on the other hand has grown from strength to strength with 2016 office demand holding steady and consistent with the 2015 level. Vacancy levels reached a record nine-year low with cities like Pune and Bengaluru having vacancy levels in single digits. In spite of a strong demand from occupiers, transaction volumes have been challenged across all cities due to the supply crunch. Not much new supply is on the anvil in 2017 and rentals will be on a continuous rise. In 2017, the first listing of REITs will be done, bringing depth in the funding of the commercial real estate sector. However, it will be important to take note of US president-elect Trump’s policy and outcome of Brexit that are likely to decide the growth trajectory of the office market.