Home price fall due to Demonetisation limited to geographies & budgets – By Sudhir Pai

Despite demonetization and its expected impact on real estate values in the Oct-Dec 2016 quarter, price decline was restricted to certain geographies and budgets. Prices dropped in only Noida, Gurgaon and Ghaziabad in the National Capital Region. Of the remaining 11 cities covered under PropIndex, prices remained stagnant in six cities. In cities like Greater Noida, Hyderabad, Thane, Bangalore and Navi Mumbai, prices went up by 0.5-2.5%.

Prices in the critical Rs 3,000-6,000 per sq.ft budget segment, which exists in 52% of the localities covered in the Propindex, remained largely stagnant. Prices in about 25% of localities in this price bracket remained stagnant, while localities with price decline were closely matched by localities with price increment. Prices of luxury property in the top six cities with significant stock, dropped by a marginal 0.7% in this quarter. This price decline in the luxury segment was witnessed across both ready-to-move and under-construction properties. This might work as a negative feedback and fresh supply in this segment is likely to be go down further.

The average price of Readyto- Move (RM) properties declined in 8 out of 14 cities this quarter. Pan-India, RM properties command a 7% premium over UC properties. With consumers preferring RM properties, the secondary markets are expected to become robust. This will keep the prices in the new launches under check.

While our survey of 14 key cities across the country points to a slowdown in the real estate activity, the price volatility has increased due to lack of liquidity, scaring away the potential homebuyers and sellers alike. The Manufacturing Purchasing Managers’ Index (PMI) has fallen to 49.6 in December from 52.3 in November, pointing to the first contraction the index in over a year. The quarterly GDP growth is also expected to be largely subdued in the October-December period.

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