‘Demonetisation may impact real estate sector in short-term’

KOLKATA: While the demonetisation drive is expected to significantly impact the real estate sector in the short-term, in the medium to long term demand will rise, according to an Edelweiss Securities report.

The impact would be more pronounced in the unorganised sector, according to the report, and the implementation of the Real Estate Regulatory Act should result in demand shifting to the organised sector. Prices would come down mostly for the luxury sector.

According to N. Murali, Managing Director, Shriram Properties, land prices will drop.

He expected a 20 per cent drop in land prices in southern states, while Mumbai and NCR may witness a fall in the range of 30 to 50 per cent depending on the cash component involved in transactions.

Demonetisation will not directly impact mid-market and affordable housing segments where land cost is normally a 10 per cent component in the project price, he said. Mr. Murali pointed out that Indian real estate sector can be classified into three segments – luxury, mid and low end with a 90 per cent shortage (of approximately 20 million units in the EWS/LIG segment) . The luxury segment comprising less than five per cent of overall demand.

Poor affordability

The Edelweiss report noted that over the last few years, the sector has been adversely impacted by factors like poor affordability in certain key-markets resulting in demand slowdown and stretched balance-sheets of the developers.

In this context, the firm concluded that while RERA implementation could trigger some initial uncertainties, impacting supply, the Act’s provisions favour organised players.

Demand would revive given that long-term residential demand drivers remain robust, according to the report. The impact on demand for office space will be minimal given that it is driven by large corporates and hence entails minimal cash usage.