Demonetisation: Stakeholders’ sentiments fall to three-year low

The demonetisation drive, announced by prime minister Narendra Modi on November 8, 2016, was a major disruption for the real estate market and pulled stakeholders’ sentiments for Q4 2016 to a new low – the worst in the last three years, says a report by FICCI- Knight Frank India, titled ‘Real Estate Sentiment Index for Q4 2016 (October-December 2016)’. The ‘current sentiment’ score has fallen drastically, below the threshold mark of 50, to become the worst quarter in the last three years. This implies that stakeholders’ sentiments for to Q4 2016 is pessimistic, the report said.

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“The respondents are of the opinion that the situation during the last quarter of 2016 was significantly worse compared to the earlier six months, reflecting the short-term adverse impact of demonetisation on Indian real estate. 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,’ said Dr Samantak Das – chief economist and national director – research, Knight Frank India.

“With an extremely dismal performance in Q4 2016, the residential sector continues to strive for stable grounds. However, respondents still believe that the residential sector will recover, albeit in a very modest way. The office market, on the other hand, remains persistent and is likely to maintain the same volume of transactions. All in all, the impending landscape of transparency, efficiency and good governance strived by the demonetisation move, the union budget’s focus on making home purchases affordable and the probable implementation of RERA, have instilled a sense of optimism amongst the respondents for the next six months,” he added.

Findings of the report

Demonetisation had a severe impact on the real estate segment, with a fall in residential sales in the top eight cities by 40% during Q4 2016 compared to Q3 2016, making it the worst performing year since the global financial crisis.
The current score of 41, which has witnessed a drastic fall below the threshold mark of 50, shows that the stakeholders believe that the current market scenario is the worst in the last three years.
However, with recent government initiatives to bring in transparency, efﬁciency and good governance through the demonetisation move and a focus on making home purchases affordable, the future sentiment score of 62 is a good indicator of the optimism portended by the stakeholders for the next six months.

Residential sector sentiment striving for stable ground

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.

Commercial office space market to remain persistent

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.
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.

Zonal sentiment score

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, have remained steadfast regarding their optimism for the real estate sector.

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