Infra Talk: Demonetisation likely to be a game changer for the better

There is currently a lot of debate on how the government’s demonetisation move will impact the real estate sector. The NIFTY Realty Index fell by almost 12% on Wednesday, purely on sentiment. While bellwethers are hinting at dark days ahead, these fears can are unfounded. Let’s look at how the major segments will fare:

The primary sales segment is largely influenced by home finance players, and deals tend to be facilitated in a transparent manner. This segment will therefore see at best a limited impact in the larger cities, though some tier 2 and tier 3 cities where cash components have been a factor even in primary sales will see a business crunch. The secondary or resale market will, however, certainly be impacted, given the fact that this segment does see the involvement of cash component. 

There will be a minimum impact on office / industrial leasing and transactions business, given that cash components do not play a significant role in such transactions.

Projects could get stretched as informal sources of capital may not be available. This, in fact, spells more opportunities for institutional capital. FDI, private equity and debt players will suddenly find the market even more transparent and attractive. Moreover, banks could start funding land transactions, thereby decelerating land prices. 

Retailers could see some impact on their business in the short-to-medium term due to reduced cash transactions. The luxury segment is likely to be hit because of the historically high incidence of black money acceptance in this segment. However, credit / debit cards and e-Wallets should come to the rescue. Overall, the domestic consumption story remains intact, with no threat to the overall strength and growth of the Indian retail industry.

Where land transactions have been happening in the realm of joint ventures, joint development or facilitating corporate divestments, will see very little impact of the demonetization move.