Demonetization to hit Real Estate hardest

The much-awaited push for making homes reasonable for end users is here. The government’s decision to ban Rs 500 and Rs 1,000 currency notes is likely to hit the real estate sector hardest. As a sector that’s identified for menace of black money, real estate is now likely to shift towards improved transparency.

The move will probably push property prices, including land prices, down as investors will not be able to utilize their cash in real estate and thereby forcing builders to sell at lower prices. Of the property markets, Delhi-National Capital Region (NCR) is likely to see a hard landing as the market is known for highest involvement of cash component.

Yashwant Dalal, president of the Estate Agents Association of India said that property markets will see around 30% correction in prices. Even builders who aver that they accept only cheques will also be forced to trim down prices given the market conditions around them. Land prices will also move downward as these deals used to see at least 30% cash component. Apart from big property markets, tier II and III cities will be worst affected. Tier II cities are the cities with population of around 1 million and are usually are regional hubs like Pune, Coachin, Mangalore, Dehradun etc. Tier III cities include cities like Nasik, Baroda, Trichy, Madhurai etc which has the population less than 1 million.

The practice of investing unaccounted wealth is extensively prevalent in real estate and the government’s latest verdict is likely to make things tricky for developers. There can be an increase in projects getting stuck as developers may go slowly on construction given the liquidity stress for them.

Rajeev Talwar, CEO, DLF and chairman of realtors’ body NAREDCO made a statement saying that there is bound to be a downward force on prices of everything including real estate. This can be a good chance for end users to buy their dream homes. Sale of plotted developments will be hit nastily. The move will lead to a more transparent sector.

While the panic is prevalent among property brokers, developers and other market participants, some are happy that the move, together with implementation of Real Estate Regulatory Act will cleanse the sector.

Vikas Oberoi, CMD, Oberoi Realty stated that this is the most positive and remarkable decision that would lead to cleaning up of the system. It will assist in improving the country’s image and attract more foreign investments. Undue advantage that some developers dealing in cash enjoyed thus far has now disappeared.

Given the existing stock across the major property markets, the impact will be gigantic in several markets where payment of cash is compulsory and the chief form of profit taking for developers as well as investors. These markets will see a major collapse making an already difficult situation even more challenging.

In the quarter ended September, unsold stock across tier-I cities rose 12% and was credited to new launches with utmost increase seen in Kolkata, followed by Ahmedabad and Mumbai Metropolitan Region.

Affected Stocks:

Stock Name

Prev. Close

Opening Price on 9/11

% change

DLF

143

129

-10%

Oberoi Reality

338

290

-9%

Godrej Properties

359

295

-8%

Prestige

183

163

-15%

Phoenix Mills

362

325

-10%

IndiaBulls Real Estate

80

72

-14%

HDIL

74

67

-13%

Omaxe

166

164

-1%

PNC Infratech

115

106

-6%

Sobha

270

240

-9%

Brigade

174

160

-9%

Sunteck Realty

275

227

-17%

Sunteck Reality share price remains most affected today, opening 17% below its previous close. Sobha traded at its new 52 weeks low. Prestige opened 15% below its previous close. Apart from Brigade, all the stocks are either Multibagger or Top 500 recommendations by Dynamic Levels. It will be worth watching their journey from now onwards.

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