Demonetisation could drag down home sales by up to 30% in next 12 months: report

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Mumbai: Home sales volumes are expected to drop between 10% and 30% in the next 12 months in major cities even as prices of under construction projects are likely to correct in few markets as a result of the government’s demonetisation programme, according to a real estate report by brokerage firm Kotak Institutional Equities.

Prices of ongoing residential projects are likely to correct between 7% and 12% in the next few quarters either through discounts or absolute pricing, the report said.

The impact would be lesser in metros like Mumbai and the National Capital Region (NCR), where prices have either started correcting or remained stagnant for last couple of years. However, high price cuts in land prices are expected particularly in small towns, following the lull in sales volumes.

The report also pointed out that new projects might be launched in smaller units, resulting in lower overall price of the houses.

However, large organized developers who have sold enough stock are unlikely to correct prices, but unorganized developers who have little access to credit from institutions are likely to correct their offer prices, it said.

“Sales volume are unlikely to pick up until prices stabilize (if/and extend to which prices drop over the next few months). Salaried people, although largely unaffected by demonetisation event, are likely to remain fence sitters for a view on prices to correct,” the report said.

While for those into businesses, house buying or investment decisions could be postponed depending on their businesses due to demonetisation, it added. This will result in affecting the sales volumes of not just the unorganized real estate firms but also for the listed ones.

“Slower volume worry us more than drop in pricing, as lower volumes will reflect in lower collections resulting in slowing construction and servicing of liabilities,” the report said, adding that slow sales will delay projects if several unorganized developers further, as availability of credit is limited to organized ones.

Debt for many developers are likely to increase over the next 12 months as most organised developers are will continue construction and in a slow sales environment will need to fund construction through debt, according to the report.