Over the past one year, demonetisation has been a buzzword across all Indian industries, much more so in real estate. It has brought significant disruptions into the economy — and particularly the real estate sector.
The roll-out of key policy reforms such as the Real Estate (Regulation and Development) Act (RERA) and the goods and services tax (GST) compounded the aftermath effects of demonetisation. Although there was a lot of confusion and uncertainty immediately after note ban, the shadow of this radical move now appears to be fading. The long-term effects of demonetisation on the real estate sector are aptly summed up by the words of the German philosopher, Friedrich Nietzsche: “That which does not kill us, makes us stronger”.
The triple decisions of demonetisation, RERA and GST resulted in a deceleration of new property launches. The supply of new housing units in the top-6 cities in India during the first three quarters of 2017 was down by around 60 per cent, compared with the corresponding period of 2016. However, this curtailed pipeline of new launches serves to cover the prevailing demand-supply mismatch, impart equilibrium to the market and make it unprecedentedly end-user friendly.
The prevailing attractive home loan rates, flexible payment plans and other attractive offers by developers, coupled with restricted new supply addition, has led to a steady decline in the unsold inventory. As of Q3 2017, only 6,38,500 units were unsold in the top-6 cities, registering a 9 per cent decline from Q4 2016 levels. According to ANAROCK’s analysis, the quarterly absorption levels across the top-6 cities reached pre-demonetisation levels in Q2 2017 itself and maintained similar levels in Q3 2017 as well.
With respect to property sales, the secondary market was obviously highly susceptible to demonetisation as compared to the primary market. Property transactions in the secondary sales and luxury housing segments tended to have significant cash components, and such sales have been hampered significantly due to demonetisation. In contrast, demand for affordable and mid-segment housing has been on a rise.
Initiatives such as interest waivers on home loans, the government’s push for affordable housing through Pradhan Mantri Awas Yojana (PMAY) and the ‘Housing for all by 2022’ mission have come to the forefront over the past one year. Various policy initiatives, amendments and reforms were all aimed at making the real estate sector more transparent, organised and fundamentally stronger. Demonetisation played a significant role in this process.
In the long term, the real estate sector is likely to regain a faster growth trajectory and is estimated to contribute around 13 per cent to India’s gross domestic product by 2028. This optimistic forecast is very much attainable because the various reforms now redefining the realty landscape in India will not only incrementally boost consumer sentiment but also improve investment inflows from foreign and domestic institutional investors going forward.