Where the Indian real estate sector will really take a hit due to demonetisation
There is currently a lot of debate happening on how the government’s demonetisation move will impact the real estate sector. The Nifty Realty Index fell almost 12% on Wednesday, purely on sentiment. While the bellwether indices are hinting at dark days ahead, these fears can at best be called unfounded when it comes to the Indian real estate business.
Let’s look at how the major real estate segments will fare:
Residential real estate: The primary sales segment is largely influenced by home finance players, and these deals tend to be facilitated in a transparent manner. This segment will, therefore, see at best a limited impact in the large cities, though some tier II and tier III cities, where cash components have been a factor even in primary sales, will see a business crunch.The secondary or resale market will, however, certainly get impacted, given the fact that this segment does see the involvement of cash component.
Commercial real estate: There will be a minimum impact on office/industrial leasing and transactions business, given that cash components do not play a significant role in such transactions.
Developers: There will be minimal impact on large institutionalised players with a solid brand and governance framework. Sales largely driven by the salaried class or investors with limited cash involvement would not suffer. Smaller developers are understandably very concerned right now because many of them have depended on cash transactions. We are very likely to see a clean-up of non-serious playersdue to this ‘surgical strike’ on the parallel economy. The impact of RERA will further discipline the industry, which will be good for its health in the long term.
Hotels and hospitality-related real estate in the organised sector will see a very negligible impact by the demonetization.
Impact of Trump’s Triumph
It is a bit early to make any accurate predictions on the full impact of Trump’s victory in the US presidential election on Indian real estate. Megan Walters, Head of JLL’s Asia Pacific Research, says we may see some volatility in currencies within the APAC region as the news is digested and risks are assessed.
For real estate investors, currency gains might be sufficient enough to prompt global investors to execute exit strategies on cross-border investments. In fact, large institutional investors would be well-advised to implement investment strategies now, before the market picks up again. Asia Pacific, and to some extent India, could stand to gain if investments pick up.