Demonetisation impact: Luxury home rate may fall by 25-30%

New Delhi: Prices of luxury homes is likely to fall by 25-30 percent following demonetisation of Rs 500 and Rs 1,000 notes as transactions in this segment involved lots of cash payments, according to real estate consultant JLL.

"The real estate sector will definitely be affected by the demonetisation exercise as it has traditionally seen a very high involvement of black money and cash transactions," said Ashwinder Raj Singh, CEO - Residential Services, JLL India.

"However, almost all such incidence has been in the secondary sales market, where cash components have traditionally been a veritable 'must'."

In other words, he said, the resale properties segment will take a big hit.

Stating that the luxury and high-end segments of housing segment will see a major impact, he said: "The legal banking/ financing channels have accounted for only a small part of all transactions in this space. The demonetisation move is likely to result in luxury property prices dropping by as much as 25-30 percent as sellers struggle to offload properties to generate liquidity."

The luxury home buyers will suddenly have a much wider bandwidth of options to choose from, he added.

"With black money suddenly being wiped out of the market, a lot of investors who have been investing in projects with unaccounted-for money - and raising prices to book profits - will be eliminated from the system, thereby aiding a much-needed correction," Singh said.

The primary market - or, more specifically, the market formed by projects undertaken by reputed and credible developers in the top 8 Indian cities - would remain more or less unaffected, the consultant said.

This is because buyers into such projects take the home loans/finance route to buy their homes, and transactions are done through legal channels, he said, adding that there would not be any major impact on sales in this segment.

"However, there might be an impact on quite a few projects in tier 2 or 3 cities where cash has played a role even in primary residential sales. However, the turmoil in this segment will settle down in a short period of time," he said.

On the overall impact on the sector, Singh hoped the passage of the Real Estate Regulation and Development Act 2016, the Benami Transactions Act and now the demonetisation move would ensure that going forward, the sector will lose much of its historic taint and become more transparent.

"Only players who conduct their business with integrity will survive. This augurs well for end-users, who will be aware of their rights, have the assurance of not being cheated and will no longer need to contend with constantly rising prices," he said.

Over the long term, the Indian real estate sector will emerge stronger, healthier and capable of long periods of sustained growth, JLL said.