Bottom Line: Can the expected budget bonanza compensate the demonetisation hit Indian real estate market?
“The sector has suffered badly due to the demoentisation and our business have been forced to go through the worst cycle. The recent interest rate cut promises that the government might give some extra sops to the home buyers but my concern is about the larger interests of the business. Can the government compensate the real estate business that has been hit due to demonetisation with a home buyer friendly budget,” questions a developer in Gurgaon while requesting anonymity.
This is not something that only this developer is asking. As a matter of fact, within the built environment of Indian real estate a large section of analysts privately admit that the demonetisation has done more damage to the real estate business than even the Lehman crisis. Some call it home-grown Lehman crisis while others term it as self-inflicted money trap.
The larger issue today is: Can the Union Budget 2017-18 change the market dynamics? Can some interest reduction and other sops uplift the home buyers’ mood and market simultaneously. The opinion is divided but what can be vouchsafed is the fact that budget is being presented immediately after hard hit on the realty sector with demonetization. It is hence being seen as either a budget with major relief or more tough days ahead.
Demonetization hit real estate & budget expectations
- Demonetisation has hurt the Indian economy in general and real estate in particular a big way
- Some call it home-grown Lehman crisis while others term it as self-inflicted money trap
- The housing sales have come to a standstill and new launches have stopped
- The rate cut has thus far not shown any sign of increased market transactions
- The Union Budget can at best reduce interest rate and encourage home buying, but the ground realities of economy and job market discouraging
Kaizad Hateria, Brand Custodian and Chief Customer Delight Officer, Rustomjee Group maintains that the real estate sector has always been upbeat with the upcoming budget and this time too one is optimistic about the future. Real estate contributes 12% to the GDP, second largest after agriculture. Real estate supports more than 150 ancillary industries. So, any challenge to real estate is challenge to the economy and any opportunity for real estate is an opportunity for the economy.
“2017 is a year of positive reforms. This year we will see the after effects of demonetisation – an axe to cut out black money, RERA – real estate regulatory being formed – a watch dog, GST being introduced – tax simplified and finally the implementation of the new development plans – a well planned city. All of these leading to more transparency, reliability, timely development and thus benefiting the consumers at large,” says Hateria.
Parth Mehta, Managing Director, Paradigm Realty categorically says that demonetization has impacted sales in real estate sector. He demands that there should be some measures in the upcoming budget, for example cut in the tax rates for middle income groups which will lay extra money in people’s hands. “Also, stamp duty reduction can give some breather. Several government approvals should be executed appropriately. Single window clearance has to be introduced.”
Vivek Mohanani, Joint Managing Director of Ekta World admits that post the announcement of demonetization, the real estate sector has seen a temporary hit. However, these changes are surely in the larger interest of the sector and its customers. It will bring about more transparency in the sector. The upcoming Union Budget announcement is expected to bring cheer to both buyers and developers.
“The real estate prices are predicted to increase marginally, as with demonetization in place, stringent rules & regulations are to follow the realty sector in the year 2017 which will give a raise to the sector. There is also a high possibility of the execution of GST in the budget 2017-18, which will relieve the buyers from paying multiple taxes, in turn boosting the purchase of properties,” says Mohanani.
Analysts suggest that with Interest rates coming down sharply at the very beginning of 2017, the demand for end use home buying will not only revive but also catch steam over quarters of 2017. Reduction in interest rates not only reduces interest cost but also increases affordability. The budget should hence focus more on the end user home buyers.
The moot point, however, still remains unanswered as no one would like to address it on record. The state of Indian economy does not allow the Union Budget to compensate the real estate sector for the hit that it has taken with the demonetization. The long term reforms are only projections as of now, and the short term losses can hardly be compensated with the Union Budget 2017-18. The developers nevertheless are living with hope and prayer.
By: Ravi Sinha
