Note ban plunges realty sentiment to three-year low

Demonetisation has had a severe impact on the real estate sector with a 40 per cent fall in residential sales in top eight cities during Q4 2016 as compared to Q3 2016. This has made 2016 the worst performing year since the Global Financial Crisis. 

These were the findings of the quarterly report by Knight Frank and Federation of Indian Chambers of Commerce & Industry (FICCI). The report captures the perceptions and expectations of industry leaders in order to judge the sentiment of the real estate market. Sharing an overview on real estate sentiment for last quarter of 2016 Samantak Das, Chief Economist & National Director (Research), Knight Frank India said, “Consequent to the major disruption during Q4 2016 i.e. demonetisation, the ‘current sentiment’ score has seen a drastic fall to below the threshold mark of 50 to become the worst quarter in the last three years. This implies that stakeholders’ sentiments pertaining to Q4 2016 is pessimistic. The respondents are of the opinion that the situation during the last quarter of 2016 was significantly worse as compared to the earlier six months, reflecting the short-term adverse impact of demonetisation on the real estate sector”. 

The demonetisation move did infuse a high degree of uncertainty and confusion in the market, but this impact seems to be transient in nature and the mid-to-long term impact is expected to be positive.

Striving for stable ground

With an extremely dismal performance in Q4 2016, the residential sector continues to strive for stable grounds. However, respondents still believe that going forward the residential sector will recover albeit in a very modest way.

Although the residential sector is going through a difficult phase, the stakeholders are quite optimistic for the future, especially with regards to sales volume

59% of the stakeholders believe that residential sales will improve in the coming six months, as against only 12% that believe to the contrary

45% of the respondents expect prices to remain stagnant while 26% expect a downward pressure on price appreciation, during the same period

Although the survey participants across the country continue to be optimistic about the future, all the zones (barring South) show a slight de-growth in sentiment in Q4 2016

The North zone witnessed the steepest decline even though it was  consistently showing improved optimism since the beginning of the year; stakeholders from the Southern zone has remained steadfast regarding their optimism for the real estate sector.

Office market stable

Office market, on the other hand, remains persistent and is likely to maintain the same volume of transactions. Office markets in key cities have achieved a good base with leasing volumes moving from strength to strength in the past few years, leading to a gradual slowdown in the growth of the sector, as compared to the phenomenal growth observed in the past

As many as 88% of the survey respondents believe that office space leasing volume will either remain the same or improve in the next six months despite the Q4 2016 survey results showing that the level of optimism for the leasing volume has come down compared to Q3 2016.

All in all, the impending landscape of transparency, efficiency and good governance strived by the demonetisation move, the Union Budget and the probable implementation of RERA have instilled a sense of optimism among the respondents for the next 6 months.”