Demonetisation, along with other progressive steps such as GST Bill, RERA and REIT will drive Indian real estate to unparalleled heights. The initial hitches are short-lived and do not hint towards a recession in the market.
Demonetization is not a sign of recession but an historic opportunity to weed out the shadow economy that is currently predominant in the country. Unfortunately, certain sections are misrepresenting the meaning of demonetization and are promoting a situation equivalent to a recession, thereby creating a negative sentiment and uncertainty in the real estate sector that existed around 2008. The impact is surely going to last for a few months, but certain markets are going to benefit out of this move majorly.
Pune real estate industry has been witnessing housing demand fuelled by the end users who are dependent on funding from banking and financial institutions. Organized developers in Pune, who operate with significant footprint, have always enjoyed catering to this segment of home buyers as it keeps the transactions transparent. Pune and similar markets like Bangalore, Hyderabad and Chennai will witness very little impact of demonetization. The affordable housing and mid segment homes which contribute to about 85 percent of new home sales in Pune will see no impact in demand irrespective of the demonetization move. This is because the customers who invest in such properties prefer dealing with operators who are accountable and transparent. The sentiment and uncertainty will ease out for this segment as liquidity eases in; which should not be beyond couple of months.
In my interactions with members of the industry in Pune, I see a positive atmosphere and all of them are welcoming the Prime Minister’s demonetization move. The positive sentiment among the developers is driven by the opportunities that are expected to unfold with demonetization complimented with GST and RERA act.
The RERA norm of having funds in the escrow account will only bring in higher transparency and increase trust on the real estate industry. Certain markets could see corrections given the ease of doing business and transparency that will help institutionalization of the sector in the long term. This will lead to an economy that is more aligned to global compliance standards and an industry with high levels of corporate governance making it easier for foreign entities to invest in India. It should also boost REIT (Real Estate Investment Trust) listing in Indian market and should see a more robust institutional investment in the market. It is estimated that real estate, retail trade, and hospitality will constitute around 30 percent of the GDP.
Pune is among the smart cities declared by the Government of India. Thereby, there is going to be a huge influx of funds to develop the infrastructure in the city. Good infrastructure will fuel job opportunities, thereafter driving demand for housing. With the demonetization move, additional funds will be made available for boosting infrastructure and with the government focusing of skills development, there is only a positive trend that is foreseen for the demand for housing.
The future spells more opportunities for institutional capital, FDI, private equity and debt players entering the real estate industry. Moreover, banks could start funding land transactions, thereby decelerating land prices. Such development would have long term benefits in respect of improving transparency in sales transaction, identify realistic price points per unit and mitigate under-hand dealings in the sector.
To sum it up, I see greater transparency and trust that will be attributed to the industry. Improved market transparency and a positive Government attitude will play a major role in attracting foreign investment. Organized developers who have been catering to end users and financial institution funding will benefit greatly. Unorganized players and fly by night operators are going to be in risk and will be impacted adversely.