Thursday, January 19, 2017

Measuring the impact on the real estate industry after demonetisation.

Demonetisation, this is the most frequently word used by the people in the present times since 8th November, 2016 the day when PM Modi announced his revolutionary step affecting the Indian economy, these day, every conversation has been dominated by demonetisation these day. The main purpose of the demonetisation was to clean up the whole system.

How is the demonetisation got connected with real estate industry.
Pre-demonetisation :
In past few years the indian real estate industry has been facing significant challenges in terms of sales and the overall growth of the industry. The industry was clearly pointing towards a slow and gradual but it was sure to recover.

Sales and Prices :
Even after sales decline for the past few years, the first half of the year saw some upward movement on the back of many positive factors. These all includes economy growth, attractive deals and discounts by the developers and new schemes such as Smart Cities, AMRUT and 'Housing for All by 2020'.

These factor's positivity induced coupled with increasing incomes and decrease in the prices, encouraged the buyers to begin finalising the deals that were put on hold previously. It was not only the investors but also the end-users who started coming back in the market.

Unsold Inventory :
Most of the prominent real estate markets in India, saw gradual decline in the unsold inventories that had been choking up liquidity for builders, except for a few pockets in the Delhi/NCR region.

One of the main reason of decline was the too expensive residential projects, against the demand for the more affordable projects, in simple way, a supply-demand mismatch.

The developers started negotiating more and offering attractive deals to liquadate their holdings and to ensure the financial stability. They also collaborated with financial institutions to offer affordable loans and announced other schemes too to help buyers in taking their decisions.

New launches:
The new launches reduced significantly in the current fiscal year, because of higher unsold inventory. Also new launches started focusing mainly on the affordable housing demand, instead of catering to the high-end residential sector.

Post-Demonetisation :
The sudden announcement of Demonetisation brought a lot of confusion, uncertainty and most of all, rumour-mongering, specially when it came to the real estate industry.

There is no doubt, that every people was affected by this initiative and initially, all the possible economic activities slowed down to a large extent.

This is not the question that real estate sector has been or has not been affected by the demonetisation iniative, however, it is important to understand where the grip really lies and where the silver lining is really. The real estate industry contributes 5-6% of the India's GDP and the any misinformation in the industry that has broad sentiment can lead to the chaos.

To clearly understand, Let's examine how the residential market affected by the demonetisation:
A. Secodary Market : It is got affected, considering the deals structure that involved often take in this market. After the demonetisation a large number of buyers went off from the market due to scarcity of cash and the sellers can do little but only wait. Due to cash scarcity the prices decreases, that definitely benefitting the buyers. However, the reduction in the prices might take some time and the reduction magnitude cannot be predicted.

B. The Primary Market :
This is the main area that has been overlooked and bundled with the rest of the real estate industry. Whatever the rumoured decline in this market is very much far from reality, this is the market, that consisting of ready to move homes and new projects that caters to end users whose primary sources of the funding are banks and the other financial institutions.

Simply understand, it is the home loans which finance the purchase of such kind of properties, so this market is specially affected by the currency ban. There was no expectation for any kind of effect in terms of the initial confusion induced decline in the sentiments.

Now the trend emerging that indicates towards a recovery in the buying sentiment, with the serious buyers already started returning to the primary markets.

The real estate developers, whose business are transparent, have not been affected by demonetisation, therefore they have witnessed sales growth instead. Such type of developers regularly launching new projects and partering with corporate consultant to market them properly to a highly responsive end-user clients.

The real fact is that the demonetisation has already resulted in reduction of interest rates of home loan and they are even expected more to reduce further. The developers, offering good deals and discounts, are balancing their position in the market which is now ideal for the serious end users.

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