Share prices of real estate companies fell as much as 18.5% on Wednesday after the government’s decision to withdraw R500 and R1,000 currency notes from circulation as a part of its crackdown on black money. Leading the pack was India Bulls Real Estate whose stock fell by 18.5% and ended the session at R65.60. The share price of DLF on the other hand fell by 17.5% and closed the session at R118.55. Stocks of other real estate companies like Oberoi Realty, Unitech, NBCC and Sobha developers fell anywhere between 55 to 11%.
“With a squeeze on cash availability, the sector may witness lower sales which, in turn, might lead to lower prices. Volumes may get impacted as potential buyers postpone purchases on hopes of reducing prices. Large players who do not have cash dealings may feel the limited impact,” said Kamlesh Rao, CEO, Kotak Securities.
An analyst requesting anonymity said since real estate companies have high debt in their books , a fall in sales volume could affect their debt servicing capabilities.
The government had declared R500 and R1000 notes in circulation “not legal tender” with effect from midnight on Tuesday. The Reserve Bank of India (RBI) will release new series of R500 and R2,000 notes and these will come into circulation from November 10. The government’s move is seen as a measure to curb tax evasion and recover illegal income stashed abroad.
The Income Declaration Scheme (IDS), which charged a one-time effective tax rate of 45% on undisclosed income or property, led to declarations of only R65,250 crore.
The S&P BSE Realty index had under performed the market over the past one month till November 8, falling by 15.8% compared to 2.9% rise in the Sensex. The realty index had also under-performed the market from the beginning of 2016 till date, declining 9.59% as against Sensex’s 4.3% rise.