One of the badly affected sectors post demonetisation has been real estate. Since cash used to be an important component in almost all real estate deals, the ban of high value currency has resulted in the cancellation of many deals, especially in high value markets like Mumbai and Delhi, resulting in drastic slump in sales and a general sentiment of low spending, including marketing and advertising spends.
In a move to promote greater transparency in the sector, the government recently implemented the Real Estate Regulatory Act (RERA), which will make the sector more accountable and reduce the flow of black money, which is many instances constitutes almost 35-40% of the transaction value.
Explaining how the demonetisation move has impacted the real estate players, Abhishek Lodha-MD, Lodha Group said, “This is a win-win situation for both consumers and investors as transparency will increase and risks will reduce substantially over the next 6-12 months. This move will improve liquidity and lowering of interest rates by 1%-1.5% in the next 12 months. With this, EMIs will also reduce by almost 12% signalling consumers to buy soon before demand and prices for housing move up. All these factors will have a spiralling effect on the ability of consumers to buy homes, impetus to real estate demand and the overall economic growth. More importantly, in the long run, the professional and well-organized companies in the real estate sector will significantly benefit from this move and the scourge of black money and corruption will eventually vanish from the sector."
Even Colliers International in its latest report on the impact of demonetisation on the India real estate sector has stated, “There will be negative impact on investment sales market as retail investor money will largely disappear.” The report also added, “Primary market sales will continue to be subdued as buyers will prefer secondary distressed property over primary markets. Some developers may be able to provide discounts though we expect them to increase the incentives. We also expect the usual resistance to lower prices. As RERA starts kicking in, it shall make the business environment more stricter, making developers hold back.”
It is not just the sales that have got affected, even the ad spends in the real estate sector have been adversely affected due to the demonetisation drive. The collective loss of ad revenue post demonetisation is pegged at Rs 2000 crore of which real estate; auto and FMCG and ad spends constitute a significant sum.
“With this move we await a softening of the home loan rates as there will be excess liquidity which can be a benefit to the home buyer. We foresee enhanced confidence of global investors looking to invest in the real estate sector,” said Boman R. Irani, Chairman and Managing Director – Rustomjee Developers.
Speaking about the impact of demonetisation on the real estate ad spends, Mudhit Gupta, CMD, EMGEE Group, said, “After demonetisation, there has been a wait and watch approach by builders and the buyers along with a drastic cut down in advertising. The current market talks of a drop in prices almost up to 25% in properties, which has created apprehension among the buyers. As a result, the real estate market has been jolted further, which already has been struggling with poor demand in the luxury segment.”
Underlining the positive impact of the demonetisation move despite its short term adverse effect on the real estate sector, Getamber Anand, President – Confederation of Real Estate Developers Associations of India (CREDAI) said, “As an industry body representing organised real estate, we again reiterate that the industry has always been catering to the primary market which comprises of end users who aggressively avail home loans. Moreover, with this step of demonetisation, banks are again going to be flushed with liquidity of approx. 15 lakh crores and will be compelled to lend aggressively. Moreover, the housing industry will start to grow at a rapid pace while concurrently being in compliance with transparency and fair practices like RERA.”
“Large real estate companies will tide over this short term disruption of sales and liquidity, we expect smaller companies from the unorganised sector to be effected in the short and medium run”, added a DLF spokesperson.
Terming the demonetisation move a bold and exciting development, Jason Kothari, CEO, Housing.com said, “The organised segment of the market shouldn’t be majorly impacted since most homes are now bought by end-users who avail home loans. The unorganised segment which relies mostly on cash transactions will be impacted significantly however. While this will slow down the market in the short-term, it will make India’s real estate sector more transparent and organised in the long-term, which in turn, will attract more funds, both, domestically and internationally. This is a bold and exciting development for Indian real estate.”
While the impact on real estate sales has taken a hit post demonetisation, according to experts its repercussions will echo in the ad spends for months to come. Summing up the sentiment in the real estate sector as far as ad spends are concerned, Gupta adds, “Seeing this decline in the market the developers have stopped advertising temporarily till the shock of demonetisation is absorbed and the market reaches some stability. The collective feeling is that there is no point in spending money on advertising when the market analysis states steep slack in demand.”