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Unharmed by demonetisation, real estate sector to bounce back in 2017

Unharmed by demonetisation, real estate sector to bounce back in 2017
After demonetisation, the fillip given to the affordable housing sector, coupled with remonetisation which is again bringing cash, as well as the hope of lower interest rates, would all help the sector see returns.

According to experts, there is a high possibility of prices softening in sub-markets or precincts away from city centres and which have seen a lot of housing supply in recent years. For example, in the Mumbai metropolitan region, precincts such as Vasai-Virar, Palghar, Kalyan-Dombivli, Shilphata and upcoming locations around Panvel have a lot of supply.

“Tier-II and III cities, especially those driven by business communities, such as Jaipur, Surat, Indore, etc, will see a higher impact of demonetisation and easing in land prices in the medium to long term. Certain projects in Kolkata’s northern sub-market might witness price reduction in the next three-four quarters. Vacant land in the north of Kolkata would see easing of prices in the next one year,” said JLL India recently.

Though rating company Fitch has said property developers’ sales would come down by 20-30% in 2017, and their leverage positions go up, many believe home sales are bouncing back. These were at a near-standstill in November as as people stood in queues to deposit old notes and withdraw money. The secondary property market and luxury home market were hit hardest, as the cash component was high in these segments.

“Our enquiries with brokers revealed they are getting enquiries and some deals have happened. So, things are picking up,” said Abhishek Tiwari, founder, CRE Matrix, a real estate analytics platform.

Knight Frank India in its July-December report, said the housing market in the top eight cities started on a positive note in 2016, with the first half seeing a 7% jump in volumes from the same period a year before.
Demonetisation upset that trend. “(It) pulled down the last quarter (Oct-Dec) sales across cities. The fall in Q4 was intense and the second half of 2016 ended below H2 of 2015. 2016 ends with launches and sales being the lowest since global financial crisis. 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 buyerscapitalise the opportunity of various reforms and change their status quo position of ‘wait and watch’. In 2017,(there will be) a lower home loan interest rate, Rera (the new segment regulator) & GST (the coming goods and services tax), likely fiscal benefits for taxpayers in the Union Budget, and enforcement of the Benami Transactions (Prohibition) Amendment,” said Shishir Baijal, chairman, Knight Frank India.
Developers were fighting a prolonged slowing in sales for the past couple of years and home prices are stable. “With rates going down and the government announcing sops for budget housing, I feel sales will pick up,” said Amit Bhagat, chief executive officer at ASK Property Investment Advisors.

Many expect home loan rates of 8% soon, as banks are flush with funds. Samantak Das, chief economist at Knight Frank, said home sales would be under pressure in the March quarter. “Everything depends on the Union Budget, banks cutting rates and so on,” he said.

Office market

CBRE India, the property consultancy, announced on Wednesday the findings of its latest India Office MarketView Report. This says the India office market saw an all-time high annual absorption of a little over 43 million sq ft in 2016, growth of 9% year-on-year. Supply addition in the year touched 35 mn sq ft, with office stock going over 500 mn sq ft by the calendar year’s final quarter, higher than in several East Asian economies.
“The commercial real estate market has been performing well for two years. This is evident in the record absorption level in 2016. India continues to show positive movement, despite global uncertainties. Policy initiatives undertaken by the government in the recent past are expected to bring transparency into the sector, a much-needed step to enhancing consumer and investor confidence,” said Anshuman Magazine, chairman for India & Southeast Asia at CBRE.