Demonetisation will hit property sales: Fitch

Expect home prices to decline this year because demand for residential property has weakened significantly following demonetisation

GN Bureau | January 25, 2017


#Demonetisation   #property sales   #Fitch  

 Fitch Ratings expects property sales in India to fall by at least 20%-30 percent in 2017, owing to disruption caused by demonetisation and general caution on the part of buyers. Homebuilders already have high levels of unsold inventory and are likely to cut selling prices as demand weakens.

 
“We expect risks to homebuilders to rise further this year, with leverage likely to increase and liquidity to tighten. Homebuilders with access to diversified funding channels are likely to be more insulated from the downturn,” it said.
 
We expect home prices to decline this year because demand for residential property has weakened significantly in 4Q16, following the demonetisation of large denomination notes in November last year.
 
Read: Demonetisation severely imperilled India’s economy: Harvard Business Review 
 
Demonetisation has made it harder for home buyers to use undeclared wealth for property payments. The number of residential property units sold in 4Q16 fell by 44% yoy, dragging down overall units sold in 2016 by 9%, based on data compiled by Knight Frank Research. The volume of new units launched fell by 61% yoy, said a press release on Wednesday.
 
It said: “We expect the largest cuts to selling prices in the National Capital Region (NCR) followed by Mumbai, where unsold inventory is the highest at 16 and 10 quarters of sales, respectively, based on market estimates. The NCR is also known to have the largest cash-based economy in the country, and therefore demand is likely to suffer more from the currency demonetisation than other regions. We expect demand for homes in Chennai and Pune to be less affected by the downturn, as unsold inventory is the lowest in these cities, at around 6-7 quarters of sales.”
 
Read: Demonetisation sickening: Steve Forbes 
 
Top-tier homebuilders like Indiabulls Real Estate Limited (IBREL, B+/Stable) and Lodha Developers Private Limited (Lodha, B/Negative) - whose sales benefit from their brand strength - have yet to start cutting home prices substantially. However, we understand that smaller and second-tier homebuilders across the country have started offering discounts of around 25%-30% to attract buyers.
 
The worst of the downturn in home sales is likely to occur in 1H17. Demand is likely to recover moderately in 2H17 as the festive season approaches, and because banks have cut interest rates on home loans by 50bp-60bp over the last 12 months to multi-year lows.
 
Fitch continues to expect homebuilders that have a large pipeline of pre-sold projects, such as IBREL and Lodha, to be better off than those that do not. However, even these homebuilders' credit profiles may weaken if demand does not recover for an extended period. Although property construction was hampered for a few weeks after the demonetisation announcement, we understand that most homebuilders have been able to work around practical issues related to making payments to suppliers and contractors, and that construction has since resumed.

Comments

 

Other News

“Key milestones achieved in Assam”

In an interview with Governance Now, Anil Kumar Jha, special DGP, CID, Assam, who is also nodal officer for the CCTNS project, speaks of what the system in its present form has helped his state achieve. What is the current status of CCTNS in Assam and its outcome?

Crime tracking project: Bugged from the beginning

A stand-off between the ministry of home affairs (MHA) and software development firm Wipro seems to have long held up the Rs 2,000 crore crime and criminal tracking network and systems (CCTNS) project, conceptualised ten years ago. The project aims to digitise and connect all police stations in the country

Activists question displacement and dispossession of marginalised communities

Questioning the development model pushed ahead for profit oriented growth, social and political activists, academicians, financial analysts and civil society organisations are holding a three day confluence of Peoples’ Convention on Infrastructure Financing in Mumbai.     &nb

The enemy within

About one-fourth of India’s elderly face abuse at the hands of those they trust the most – the son (52%)  followed  by the daughter in law (34%),spouse/partner (14%), daughter(6%)  grandchild (6%), son in law(3%), parent(1%) and care giver(1%), reveals a report by the HelpAge Ind

Who has been investing in India through Mauritius?

The official statistics provided by the department of industrial policy and promotion (DIPP) under the ministry of commerce and industry shows that between January 2000 and December 2017, India received $368 billion of foreign direct investment (FDI). It also says that Mauritius was the source of $125 bill

The neighbour and the valley

The declaration communicated through the director general of military operations (DGMO) of Pakistan and India on May 29, 2018, to implement the ceasefire agreement of 2003 between the two countries in “letter and  spirit” has opened up an opportunity to restore peace in the disturbed Kashm

Current Issue

Current Issue

Video

CM Nitish’s convoy attacked in Buxar

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter