The real estate market in the country’s tier-II and III cities are likely to feel a massive impact of the Centre’s demonetisation move as majority of transactions in these cities involve relatively larger cash components. This, coupled with the likely lull in the resale market because of the tight-leash on cash, could squeeze the life out of realty in these markets.
Potential customers in tier-II and tier-III cities, fretting over the non-availability of liquid cash, are almost certain to postpone any major business transactions, according to the industry experts. Smaller developers are under pressure now due to high dependency on cash transactions and the Centre’s move is likely to see a clean-up of lesser-known players.
Real estate consultants said activities will be majorly hit in places like Surat, Nagpur, Lucknow, Vadodara, Jaipur, Indore, Chandigarh, Gurgaon, Rajkot, Bhopal, Kanpur, Thane, Vishakhapatnam, Faridabad, Ghaziabad, Ludhiana, Nashik, Coimbatore, Kochi and Thiruvananthapuram, where lesser-known local players have had a major run.
Anuj Puri, chairman & country head, JLL India, said the smaller markets will see a higher impact than tier-I cities. In larger cities and metros which are influenced by major players, deals tend to be facilitated in a more transparent manner. “However, some tier-II and tier-III cities where cash components have been a factor even in primary sales will see a business crunch,” he said.
The resale market will also be impacted. The luxury and high-end segments of residential real estate will also be hit as such transactions often involve higher cash component, Puri said. According to JLL, projects could get stretched as informal sources of capital may not be available.
Shishir Baijal, chairman & MD, Knight Frank India, said the impact will be felt across the board with tier-II and tier-III markets taking a larger hit. Prices coming down to more reasonable levels in the market cannot be ruled out, he said. In the immediate future, the sector will be under serious pressure with volumes, number of transactions and prices in residential and land markets seeing a substantial downward trend.”
The Indian real estate market, which is largely fragmented and unorganised, has had a reputation of being a safe haven for black money. Anshul Jain, MD, India, Cushman & Wakefield, said the impact is likely to be seen in secondary markets for all asset classes till the market adjusts to a new normal.
“In the short term, we are also likely to see an impact on general liquidity in the market and, therefore, working capital needs for small and medium developers and other businesses will be lot higher,” Jain said.
According to Colliers International, there would be little or no transactions in secondary sale of residential units at least for the next three months. Investors may adopt a wait-and-watch approach in expectation of decrease in prices. Amit Oberoi, national director, knowledge systems, and Surabhi Arora, senior associate director, research, at Colliers, said the developers can expect an impact on their cash flows.