The government’s move to demonetise currency notes of higher denominations will have a negative impact on sales of high-end, premium properties for high net worth individuals and investors and not entry-level housing targeted at first-time buyers. Also, builders exposed to projects in the National Capital Region (NCR) will be hit harder than their counterparts in other regions, because the area is known to have a greater reliance on cash-based transactions, says a report by.Fitch Ratings titled Currency demonetisation likely to hurt Indian homebuilders.
The pace of project execution across the sector is likely to slow down till the industry adjusts to the new paradigm. New and existing projects with a significant number of pending regulatory and local government approvals will be hit the hardest. Residential property prices and sales are expected to fall, as consumers attempt to work out how best to declare their wealth after increased scrutiny of income-tax evasion following closely on the heels of the tax amnesty scheme which expired on September 30, 2016.
“We expect that the curtailing of undeclared wealth in the economy will be supportive of the real estate sector over the longer term, as it is likely to improve affordability and bring about greater transparency,” the report said.
The developer community, however, has said that the fallout of demonetisation will be that banks again will be flushed with liquidity of approximately Rs 15 lakh crore and will be compelled to lend aggressively.To do that ,they will have to lower interest rates.
Demonetising currency has also removed surplus liquidity from the market which will result in reducing inflation.
“We expect that the RBI will definitely, in the coming months, reduce repo rates by at least 2% so that a home loan can be brought down to at least 7%. With the home loan rates coming down to such levels of sub 7% in the next year or so, the atmosphere will become more like in the west where home loans are available at 5% and below. Unlike the western countries, India has a documented shortage of housing and homes, an aggressive domestic demand for real estate. This essentially means that in the presence of a lower home loan interest regime, a larger pool of home buyers will be able to avail loans to buy the homes they always wanted. This could be made possible in as soon as the next six to 12 months. Housing industry will start to grow at a rapid pace while concurrently being in compliance with transparency and fair practices like RERA,” says Getamber Anand, president, Credai National.