Performance in the real estate sector is experiencing a negative impact emanating from increasing stock of unoccupied industrial properties on the back of subdued economic activity, this is according to listed entity TSL Limited. Speaking at the Group’s results briefing last week, TSL CEO Washington Matsaira, said the

Will property prices go down after demonetization in India? If yes, how?

Majority of the investments are driven by

  • Logic
  • Market Sentiments
  • Likely future events

In a nutshell I would like mention that do NOT buy real estate for the next 9 to 12 months AT LEAST. Whatever be the situation. If you have the patience and an open mind, please continue to read.

9 Major Reasons to postpone buying Property :

  1. Real estate in the primary market was driven largely by unaccounted cash which is now worthless. Due to this there would be a slowdown in the completion of projects. However builders will need to complete the projects within a stipulated time as RERA (Real Estate Regulations Act) would be enforced by March 2017. Remember majority of the houses in a under-construction property belong to Investors (More about investors in the later points). Due to this there would be an oversupply of houses as several of the stuck projects WILL NEED to be completed., failing which the builder can be imprisoned and / or heavily penalized.
  2. Due to the demonetization people are careful / frugal in spending. In general the sentiment would continue to be negative as people would shun making major decisions on buying real estate. Forget real estate, it is expected that White Goods such as TV, Fridge and AC would be sold at a heavy discount of about 20% to 30% from January 2017. Hence no major buying is expected for at least 6 to 12 months in the already suffering real estate sector. Due to this the prices for real estate would witness a downward spiral as there would be inventory build-up.
  3. The real estate sector which is already stressed especially in NCR and parts of Maharashtra including Mumbai and Pune as well as Goa would see further negative impact and would be impacted the MOST. One could easily expect a correction of around 40% with a minimum correction of 30% in most of the regions. Real estate markets in places such as Bangalore and Hyderabad which witnessed boom due to salaried class will be impacted – but not much.
  4. Several builders will need to complete projects on time as per RERA. For this they will need to liquidate their assets – existing flats or properties – at a discounted rate as general public has gone into SAVINGS mode. If dealing directly with a builder – one could expect HUGE discounts – anywhere between 30% to 40% on the last reported price of October 2016. This situation would come in around January 2017 and is likely to stay the same for a good part of the Calendar year 2017.
  5. The secondary market which is resale of properties – which was dependent on Investors – would also see a correction of about 40%. This is primarily because the cash to cheque ratio in the secondary market has been 30:70 (more in some other places). Moreover many of the Investor flats – in completed projects (estimated at about 30% of total inventory) are empty and are now likely to be liquidated. There would be a situation of oversupply and falling prices. Unless one gets a discount of 30% minimum over the last reported prices, one should not go for buying as this could be a HUGE RISK.
  6. Trump victory in US has ensured high bond yields. Due to this several global investors will pull their money out of India thereby impacting Equity (short term) and Real Estate (short to long term). Equity, which is relatively liquid as compared to Real Estate, is already witnessing outflow of foreign funds. With falling Oil prices, the middle East investment in India has already slowed down. Majority of the investment by HNIs and NRIs as well as Real Estate firms of the middle-East were in Real Estate in India. As witnessed already in the last 2 years, Mumbai has seen commercial properties prices coming down and may seen further revision in the next 12 months. However the residential sector would be impacted more than the commercial sector.
  7. Action against BENAAMI properties – the next likely step by the Government – will lead to oversupply in the housing sector. Strict action is expected against BENAAMI property owners. In such a scenario the owners of such properties would prefer foregoing of properties. This would be similar to people foregoing their currency notes in Dustbin or Burning them or donating in the river. Such properties would be auctioned off at competitive prices. Majority belongs to Netas and builders., thereby adding to inventory as well as adding to builders’ woes.
  8. Mr. Modi personally comes from a humble background and understands the hardships of common man. In the next 12 to 18 months the real estate would have hit rock bottom thereby enabling common man to buy a home – Housing for ALL – another one of Modi’s dream. This would be just in time for next elections as the process could take 24 months or so. This would also enable Mr. Modi to win the next elections comfortably.
  9. If you come across agents or builders who say RERA also introduces taxes which would be passed on to the consumer thereby increasing prices post February 2017, do not fear, this is an old tactic to induce fear and results in panic buying. In the present situation a builder has no option but to make a sale. While the consumer has an option to stay in the existing place – whether rented or owned. The only silver lining is that Property rentals would see a slight upswing when the economy improves about 6 months down the line. If one is looking to sell a property one should do it NOW as it is going to be a BUYERS MARKET for the next few years.

UPDATE OF 28TH NOVEMBER 2016

As mentioned in point 6. above., Foreign investors have started pulling their money out of India (check the news link below). Slowly and steadily real estate will come down. Wait and Watch for 3 months., markets in NCR, Goa and Pune to be the WORST AFFECTED.

Rupee hits a new 2016 low as foreign investors pull out $ 5 bn in Nov