Impact of demonetisation on land prices

Following the government’s demonetisation drive, land prices in the fringe areas around metros and tier-2 and tier-3 are likely to plummet in the coming years. This may bode well for home seekers looking for affordable housing

Post-demonetisation, the affordable housing segment, which is confined to the fringe areas of metros, is expected to get a boost as land prices will plummet in the next few years, especially in far-flung areas around Indian metros, and the tier-2 and tier-3 cities. Most agricultural land transactions, involve a cash component, which has been affected after prime minister Narendra Modi’s announcement on the evening of November 8, 2016.

Rs 500 and Rs 1,000 notes ceased to exist as legal tender from November 9. Land dealings involving a cash component, therefore, will no longer be carried out in the old ways. Those dealing in cash, will be unable to pay in the old currency notes and those with undeclared sources of income, would fear paying entirely in white, as it will risk attracting the IT department’s scrutiny.

While the areas within metropolitan limits will be saved from land devaluation, due to their high demand and low supply scenario, their poorer cousins – the fringe areas – will see an impact after a year or so. As land prices ease in these areas, the sizes of apartments will also come down. This should help bring house prices closer to the affordability of many salaried home buyers and spur real estate demand.

Consequently, it will be driven largely by end-users and not speculative investors.

See also: Demonetisation analysis: Will property prices increase or fall?

Property markets that may witness price correction owing to demonetisation

  • There is a high possibility of prices softening in sub-markets or precincts that are located away from the city centres and which have seen a lot of housing supply in recent years. For example, in the Mumbai Metropolitan Region, precincts such as Vasai-Virar, Palghar, Kalyan-Dombivli, Shilphata and upcoming locations around Panvel, have a lot of supply.
  • Tier-2 and tier-3 cities, especially those driven by business communities, such as Jaipur, Surat, Indore, etc., will see higher impact of demonetisation and easing in land prices, in the medium-to-long term. Certain projects in Kolkata’s northern sub-markets, may witness price reduction in the next three to four quarters. Vacant land in the north of Kolkata, along BT Road (outside its municipal limits), would see easing of prices in the next one year.
  • In Hyderabad, precincts like Uppal, LB Nagar and Shamirpet in the eastern sub-market, have more plotted developments and row houses than residential apartments. Therefore, the cash component in transactions is also relatively higher and due to consistent delays in the metro project, there is a possibility of price correction here.

Other cities also have fringe areas, where prices will ease. However, such locations will need to be observed over the next six to 12 months, to understand by when and what margin, the prices there will soften. Local demand-supply dynamics could also impact the pricing in some of these areas.

(The writer is chairman and country head, JLL India)

 

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