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Post demonetization Indian realty valuation of Rs 8 Lakh crore to be wiped off: PropEquity

In the aftermath of demonetization impact on Indian real estate sector, market value of residential property of Rs 802,874 crore is expected to be wiped off in the next 6-12 months.

According to PropEquity research, residential real estate valuation in the top 42 cities in India, sold and unsold, will take a tumble and fall upto 30 per cent from Rs 39,55,044 crore by approx. Rs 802,874 crore to Rs 31,52,170 crore.

 Maximum fall on total market valuation will be in Mumbai Rs 2,00,330 crore followed by Bangalore by Rs 99,983 crore and Gurgaon Rs 79,059.

 

Cities Units Mn SQFT Value (Rs, crores) Weighted Avg Price Rs/PSF Expected Drop
(In %)
Drop Value (Rs, crores) Value Left (Rs, crores)
Gurgaon 196,608 407 316,235 6,476 20-30 79,059 237,176
Noida 188,028 306 174,263 5,494 20-30 43,566 130,697
Bangalore 550,876 867 499,914 4,845 15-25 99,983 399,931
Kolkata 183,662 238 117,215 3,577 10-20 17,582 99,633
Chennai 249,636 312 173,511 4,665 10-20 26,027 147,484
HYD 225,234 403 176,501 3,875 10-20 26,475 150,026
Mumbai 278,842 373 801,320 18,108 20-30 200,330 600,990
Pune 568,803 621 372,352 4,735 15-25 74,470 297,882
Thane 555,708 469 292,036 5,202 20-30 73,009 219,027
Navi Mumbai 245,370 233 151,072 4,531 15-25 30,214 120,858
Pan India 4,942,637 6,633 3,955,044 5,124 10-30 802,874 3,152,170
 

 

PropEquity Research (Residential (Built-up Properties , all units, available and sold since 2008-20 for 42 cities)

Indian realty is now bracing for sub-prime level crisis, which is expected to deeply impact the core of unorganized real estate and black money.

“We expect lot of secondary market transactions (resales) coming down in volume. For every five buyers out there, there is only one buyer willing to pay all-cheque. And usually, people want to take at least 20 to 30 percent of the amount in cash, but this will now go away for the time being. There will be almost a complete stop in resales in the coming weeks as this move will take sometime for real estate sector to absorb,” Mr. Samir Jasuja, CEO and Founder of PropEquity said.

Moreover, in the last 15 days there have been unprecedented transactions where lot of people are trying to convert their unaccounted money into Real Estate.

But this will also mean that we can expect more formal and organized developers to weather this storm and will relatively be in a better position in the next 9-12 months. In our view, there will be acute pain in the short-term but in the mid to long run it will be hugely beneficial for Indian realty as it will create lot of transparency”.

Impact

 Customers

  • End-users in the market will wait for the prices to come down and will delay all their buying decisions in anticipation of price crash.
  • Small retail investors will completely go out of the market and will only enter it after 6-12 months.
  • Investors, which are already invested in under construction properties, will default on their payments to developers as they will fear that the properties will come down below purchase value.
  • Big retail investors will withdraw from markets for lesser value as returns will not commensurate.

Developers 

  • Large established developers with significant exposure to commercial real estate, especially grade A development, would be relatively less impacted as they will focus on commercial and office space in this period. Developers like DLF and Prestige etc., would be able to weather the storm as they have a large commercial portfolio. There will also be lot more focus on REITs to unlock value of rent yielding commercial assets.
  • Developers with focus on residential and no commercial properties to lease will be deeply impacted, as they will find it difficult to sell residential units in the next 6 months. They will find it difficult to complete their existing projects as investors will not take up land or units for collateral due to uncertainty of sales.
  • Branded developers like Godrej and Tata etc. will be able to sustain as they are asset light and are primarily into joint development with their partners who are the landowners. They will have lot more bargaining power with their JD partners in these times as land values are also expected to drop by upto 30% and will see expanding their footprint pan India in these times by aggregating land in the current scenario.

PE/Banks/NBFC

  • In a scenario where lending has already happened, financial institutions will restructure their loans and will increase moratorium of loans for 2-3 years to developers. They will allow developers more time to repay loans as to lower their exposure for loan defaults to counter this unprecedented “Black Swan Event”.
  • Fresh lending for next one years will come to a complete standstill in the residential sector as the collaterals offered to these institutes in forms of saleable units will now become worthless due to uncertainty in sales of these projects.
  • Institutions that one lease out would now focus on commercial real estate (grade A properties) deals as demand for them still outstrips supply by a margin. As these properties are primarily for leasing, demonetization impact on them would be limited.

Government

  • As govt. is looking to move to white money economy, it stands to gain the most with turning the realty sector into formal, organized and transparent market.
  • Their collections via stamp duty, property taxes etc. would go up as they would now be calculated on their real market prices and not undervalued ones.
  • In the mid to long term, execution pace of projects would go up as developers with strong track record and part of the white economy would be able to turn around projects quicker which would lead to lesser delays in delivery of projects, a perennial problem with Indian realty.

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