Real Estate: Taking The ‘Demon’ Out of Demonetisation

Posted by: at 1/11/2017 08:20:00 pm

Ashwinder Raj Singh, CEO – Residential Services, JLL India

Real Estate: Taking The ‘Demon’ Out of Demonetisation

Demonetisation - the most-repeated word used by an entire nation in the current times. Since 8th November 2016, the day PM Modi announced this revolutionary step affecting India’s economy, demonetisation has dominated every conversation and been connected with everything wrong happening in our economy. The purpose of the entire exercise was to clean up the system, and that is how it invariably got connected with real estate.

However, it is less pertinent to debate about the connection between demonetisation and real estate than to clear a lot of myths surrounding the realty sector. It is high time to tame the wild rumours and uniformed angst about the impact of demonetisation - and other macro-economic and policy changes in 2016 - on the Indian real estate sector.

Let’s have a bird’s eye view of the entire market:


The Indian real estate sector has been facing significant challenges in the past few years when it comes to sales and overall growth. With a lot of measures, the sector was clearly pointing towards a slow and gradual, but sure recovery.

·         Sales & Prices: After stagnating or even declining sales for past couple of years, the 1st half of the year saw some upward movement on the back of many positive factors. Prominent among these were the overall growth in the Indian economy, attractive deals and discounts being offered by developers, and the high potential of schemes such as Smart Cities, AMRUT and Housing for All by 2020 initiated by the Government. The positivity these factors induced, coupled with increasing incomes and lowering of prices, encouraged buyers to begin finalising deals that were previously put on hold. Importantly, it was not only investors but also end-users who started coming back in the market.

·         Unsold Inventory: Except for a few pockets in Delhi-NCR, most of the prominent real estate markets - including some NCR micro-markets - saw a gradual decline in the unsold inventories that had been choking up liquidity for builders. One of the reasons was the residential market being flooded with projects that were expensive, against the demand for more affordable ones - in simple terms, a classic supply-demand mismatch. To liquidate their holdings and ensure financial stability, developers became amenable to negotiating more and offering attractive deals. They also tied up with financial institutions to offer affordable loans, and announced other schemes to help buyers take decisions. This had started paying off.

·         New Launches: New launches reduced markedly in the current FY 2016-17, owing to higher unsold inventory; this means the developers were focusing their resources on disposing off the developed projects. Also, catering to the demand of affordable housing, new launches started focusing on that segment instead of catering to the high-end residential sector.


Owing to its uniqueness as an economic event, demonetisation brought a lot of confusion, uncertainty – and, most of all, rumour-mongering - especially when it came to the realty sector. No doubt, everyone was affected by this radical measure, and initially all possible economic activities slowed down to a large extent. However, the dust soon settled and economic activity resumed. Unfortunately, this quick return to relative stability is not something that has been adequately captured by the more disaster-focused media channels.

Every critic and observer took the easy way out to describe this event as the death of the real estate sector as we know it. Obituaries were written, the market was more or less written off, builders were expected to shut shop and prices were seen as headed for a terminal nose-dive into next to nothing. Such was the vision of untrained eyes’ imaginations.

This is not to say that the real estate sector has not been affected by the demonetisation move; however, it is important to understand where the pinch really lies, and where the silver lining is. The Indian real estate sector contributes 5-6% of the country’s GDP, and any misinformation in a sector that is largely sentiment-driven can lead to chaos.

To get a clear picture, let us examine how demonetisation affected the residential market:

·         Secondary Market:  This market definitely got affected, considering the structure of the deals involved often take here. With scarcity of cash, a large corpus of buyers went off the market and sellers can do little but wait. This will also result in the reduction of prices, thereby benefitting buyers. However, the pricing reduction might take time - and the magnitude of reduction cannot be predicted at this stage.

·         Primary Market: This is the area that has been overlooked and bundled with the rest of the real estate sector. The rumoured decline in this segment is very far from reality, because the primary market - consisting of ready-to-move homes and new projects – caters to end-users whose primary sources of funding are banks and other financial institutions. Simply put, it is home loans which finance the purchase of such properties, so this segment is effectively insulated from the currency ban. It was not expected to be affected, and in fact was not – other than in terms of the initial confusion-induced decline in sentiment. The trend emerging now points towards a recovery in buying sentiment, with serious buyers already returning to the primary markets.

This positive development is adequately illustrated by the performance of the JLL Residential (JLLR) division, which has had a phenomenal year and doubled its profits in 2016 over 2014-15 with 60% revenue growth. Such a performance in what has been one of the toughest phases for the real estate sector in more than a decade could not have happened in a declining market environment.

Above all else, these readings vouchsafe the faith that buyers have in developers with credible reputations. Real estate developers with transparent business practices have not been affected by demonetisation, and have instead witnessed sales growth. Such Grade A developers continue to launch new projects, partnering with corporatized consultancies to market them ethically to a highly responsive end-user clientele.

The fact is, demonetisation has already resulted in a major reduction of home loan rate interest rates, and they are expected to reduce further. Developers offering good deals and discounts are maintaining their position in a market which is now ideal for serious end-users. 
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