Housing prices in 42 major cities across India could drop by up to 30 per cent over 6-12 months after the demonetisation of high-value notes, wiping out over Rs 8 lakh crore worth market value of residential properties sold and unsold by developers since 2008.
“In the aftermath of demonetisation impact on Indian real estate sector, market value of residential property of Rs 802,874 crore is expected to be wiped off in the next 6-12 months,” PropEquity said in a statement.
PE Analytics owns and operates PropEquity which is an online subscription based real estate data and analytics platform covering over 83,650 projects of 22,202 developers across over 42 cities in India.
“According to PropEquity research, residential real estate valuation in the top 42 cities in India, sold and unsold, will take a tumble and fall up to 30 per cent from Rs 39,55,044 crore by approx Rs 8,02,874 crore to Rs 31,52,170 crore,” it added.
The market value is of 49,42,637 units, which are built-up ready, under construction and currently launched properties, available and sold since 2008 for 42 cities.
Maximum fall on total market valuation will be in Mumbai Rs 2,00,330 crore followed by Bangalore by Rs 99,983 crore and Gurgaon Rs 79,059.
“Indian realty is now bracing for sub-prime level crisis, which is expected to deeply impact the core of unorganised real estate and black money,” PropEquity said.
“We expect lot of secondary market transactions (resales) coming down in volume. For every five buyers out there, there is only one buyer willing to pay all-cheque. And usually, people want to take at least 20 to 30 percent of the amount in cash, but this will now go away for the time being,” Samir Jasuja, CEO and Founder of PropEquity said.
“There will be almost a complete stop in resales in the coming weeks as this move will take sometime for real estate sector to absorb,” he added.
PropEquity also said that there have been unprecedented transactions in last 15 days with lot of people trying to convert their unaccounted money into real estate.
“But this will also mean that we can expect more formal and organised developers to weather this storm and will relatively be in a better position in the next 9-12 months,” it said.
“In our view, there will be acute pain in the short-term but in the mid to long run it will be hugely beneficial for Indian realty as it will create lot of transparency,” PropEquity said.
Moody’s Investors Service on Thursday said that the shock ban on high-denomination currency notes will in the near term significantly disrupt economic activity and lead to weaker growth, but in the long run can boost tax revenues and translate into faster fiscal consolidation.
With 86 per cent of the currency in circulation being swept away with the ban on 500 and 1,000 rupee notes, households and businesses will experience liquidity shortages for a few months, it said, adding demonetisation will “weigh on GDP growth for a few quarters, dampening government revenues.”
But in the medium term, higher income declarations by way of deposits of banned notes will boost tax revenues which will support government’s capital expenditure programme and support fiscal consolidation, it said.
In a report titled ‘Indian Credit -- Demonetisation Is Beneficial for Indian Government and Banks; Implementation Challenges Will Disrupt Economic Activity’, Moody’s said the demonetisation move is affecting all sectors of the economy to various extent, with banks being the key beneficiaries.
“Although the measures in the near term will pressure GDP growth and thereby government revenues, in the longer term they should boost tax revenues and translate into higher government capital expenditure and/or faster fiscal consolidation,” Moody’s Sovereign Group Associate MD Marie Diron said.
Moody’s added there will be loss of wealth for individuals and corporates with unreported income, as some will choose not to deposit funds back into the formal financial system to avoid disclosing the sources of these funds.
In the immediate period, demonetisation would “significantly disrupt economic activity, resulting in temporarily weaker consumption and GDP growth,” it maintained.
Households and businesses will experience liquidity shortages as cash is taken out of the system, with a daily limit on the amount in old notes that can be exchanged into new notes.
“Corporates will see economic activity decline, with lower sales volumes and cash flows, with those directly exposed to retail sales most affected,” Moody’s Corporate Finance Group MD Laura Acres said.
However, greater formalisation of economic and financial activity would ultimately help broaden the tax base and expand usage of the financial system, which would be credit positive, it added.
In a separate report, S&P Global Ratings too said demonetisation would be positive in long-term, but will have a transitory impact on growth in the short run and could hurt banks’ asset quality. .
“Bank deposits would benefit due to demonetisation, though not all inflows will remain in the banking system on a permanent basis,” S&P said.
On November 8, Prime Minister Narendra Modi announced demonetisation of 500 and 1,000 rupee notes, thereby withdrawing 86 per cent or Rs 14 lakh crore worth currency from circulation.
Moody’s said implementation challenges, in addition to affecting growth and government revenues, will impact corporates by lowering sales volumes and cash flows.