War on black money: Real Estate to see ‘drastic’ short tem impact

As the realty sector took a hit following Prime Minister Modi’s surprise move to ban the circulation of Rs 500 and Rs 1000 notes in an effort to curb black money, developers believe that while this move will have a positive impact in the long run, the sector will be hugely affected in the short run.

Pushpa Bector, Executive Vice President & Head DLF Retail Malls, stated “The decision will definitely have an impact on the retail sector as significant number of the transactions are executed in cash. However this will be a short term impact. We hope to see recovery in the retail sector soon as customers will adapt to other modes of payment available to them.”

The impact will be more harsh on realty as the sector, which is infamous for conducting business through black money, has already been experiencing low transactions. Commenting on this, Amit Goyal, CEO, North India Sotheby’s International Realty stated, “As it is, transaction volumes are at all time low and this would further reduce activity in the market place. Similarly, sales velocity in case of primary developments is extremely low, especially in Delhi NCR market where market is largely driven by investors instead of end users. After this ban of large denomination currency notes maximum impact would be on farm houses and category B and C colonies of Delhi.”

Sanjeev Khetrapal, Director at Aarambh Realty called Prime Minister Modi’s move too harsh a step, saying that it will have a drastic impact on the sector for the next few years. “The knee jerk reaction on real estate transaction is drastic. The move has again hurt the sentiments of all, i.e the buyer , the seller and the investor. Obviously in the long run this would be a game changer for realty”.

He added, “There will be no sun shine for sale, purchase, renting of real estate for next few more years. Coming up of Real Estate Bill and now withdrawal of Higher denomination will back seat all construction and development in real estate. Investors have withdrawn from the market and present deals are also being cancelled in commercial and residential deals . There are many other ways to stop black money its too harsh a step.”

On Tuesday, Prime Minister Narendra Modi announced the removal of the Rs 500 and Rs 1,000 currency notes effective from November 8 midnight as new currency notes would soon replace them. Modi announced a 50-day window from November 10 to December 30 for those having these notes, to deposit them in their bank and post office accounts. Following his announcement, the realty sector on Wednesday took a hit as share prices fell up to 20%, below the red line. On Wednesday morning, shares of Delta Corp Limited was down by 19.19%, while the shares of Housing Development & Infrastructure Ltd (HDIL)and DLF were down by 15.45% and 16.81% respectively, while India Bulls Real Estate was down by 15.34%. However, before the market close, HDIL further dropped by 16.66%, DLF by 17.47% while India Bulls Real Estate dropped by 18.51%.

On the NSE, the CNX Realty index closed at 175.95, down 23 points..

However, despite the short term effect that the announcement will have on the sector, developers are hailing Modi’s move and expecting a positive impact in the long term. Many have also said that only those in the less organised segment of the sector will be adversely affected. They have stated that professional realtors have been selling property in cheque payment for a decade and hence only one-time businessmen or those in the less organised segment will be affected.

Munish Doshi, MD, Acme Group, said “ The professional realtors have anyway been selling property in cheque payment only for more than a decade now. There are many onetime businessmen becoming part time Developers – using cash to develop/construct a single stand alone buildings since they could deal in cash. The quality and security of such constructions are questionable. Now that this won’t be possible, we will only see organised and professional developers who are anyway favouring cheque payments growing further. It is encouraging.”

M Murali, Managing Director, Shriram Properties, stated, “Those in the less organised segment will only be affected. Today, most of the reputed developers have good practices already in place and having everything accounted. In the recent past, the industry has already witnessed several welcoming steps like Real estate bill to bring in more credibility and transparency. The organised real estate sector welcomes Prime Minister’s present step as it will further improve sector’s position on transparency and corruption in the global minds thus enabling further capital flow.”