Demo weighs
Prices may rise by about 20% post-demonetisation, as new regulations make builders wary of fresh launches
Prime minister Narendra Modi’s abrupt announcement of banning high denomination currency notes of Rs 500 and Rs 1,000 on November 8, 2016, kept everyone wondering about its impact on the real state sector.
A recent Grant Thornton report, Indian Real Estate Sector – Annual Handbook 2017, along with realtor’s body Credai, provides some clues: it anticipates that housing prices may go up by as much as 20 per cent due to the note-ban impact.
Not just this, it believes key policy initiatives like Real Estate Regulation Act or Rera and GST could actually keep the Indian realty market subdued in FY18.
Says Neeraj Sharma, director, Grant Thornton Advisory: “With GST and Rera coming into picture, the realty sector is going to be in a transition zone. The impact of this transition will remain for a minimum of one year. Once things are up and running, the future is positive. As of now, short-term impact may trouble the sector and its stakeholders.”
It is already five months since November 8 and sector experts, including market watchers still see DeMo, among others, leaving their impact.
Surprisingly, real estate majors claim little or no impact of the DeMo drive on their Q4 earnings even if in Q3 FY17, the impact of the note ban campaign was significantly visible.
Predicts the Grand Thornton report: “Prices have a chance to rise by about 20 per cent in the next one year post-demonetisation, as builders go slow on new launches, introduction of the new regulatory bill and higher input cost. New launches are expected to dry up rapidly as realtors wait and watch, and customers anticipate a further drop in housing prices.”
It goes on to state that the situation will be aggravated as new approvals will be slow and builders will have to be more Rera-compliant, which comes into effect next year.
Insiders say that developers have gone slow on launches as sales remain sluggish, inventory piles up, debt levels reach alarming proportions and consumer sentiment remains low.
This assessment is pretty much in line with what DLF experienced in its Q4 earnings.
A recent report by JP Morgan on DLF’s Q4 earnings highlights a rather bearish outlook on the residential business for F18 as Rera and GST – in line with what Grant Thornton believes - will be disruptors to the market over the next year as benefits from these regulations will take time to come through.
Another recent report by ICICI Direct states that Rera could bring along with it some near- term hiccups.
The Thornton report further adds that due to a few distressed deals, the secondary market may see a correction of 5 to 7 per cent in 2017.
Although the Act is expected to bring discipline, stability and order in real estate sector, which lacks mechanisms, processes and strict supervision of any legal authority, “the actual implementation of the Act starts only when states decide to do away with the biggest and greatest hurdle responsible for property delays, which is inaction by the authorities,” the report states.
Among other things, Grand Thornton believes that the Indian capital market is eagerly awaiting a Reit-listing in FY 2017-18.
Real Estate Investment Trusts (Reits) raise funds from a large number of investors and directly invest that sum in income-generating real estate properties.
These are trusts that are also listed on stock exchanges so that investors can buy units in the trust. An independent trustee on behalf of unit holders holds the assets of a Reit.
shishirparasher@mydigitalfc.com
Columnist: 
Shishir Parasher