Housing sales of most developers are expected to fall by at least 20-30 per cent on lower demand following demonestisation of Rs 500 and Rs 1,000 notes, Fitch Ratings today said.
"Fitch Ratings expects residential property sales of most Indian homebuilders to weaken by at least 20%-30% in 2017, because the government's move in November 2016 to curtail undeclared wealth by demonetising certain currency notes is likely to take a toll on demand," the agency said.
Fitch said that the demonetisation move comes at a time when property demand in India had slowed due to rising unsold inventory and high prices. It also said that the property and gold are popular instruments for investing undeclared income in India's large cash-based economy.
The rating agency also expected unsold inventory to rise and prices to drop.
"We expect unsold inventory to increase in 2017 as a result of weak demand, particularly in the National Capital Region (NCR) - which we believe has the most significant cash-based economy.
"Industry data shows that the NCR had the highest unsold inventory - of around 16 quarters of sales as of June 2016 - while unsold inventory in Mumbai and Chennai was lower at around 10 and seven quarters of sales, respectively," the agency said in a statement.
Property prices might moderate and the decline was likely to be more pronounced on sales of higher-end, premium property rather than entry-level housing sought by first-time home buyers, it said.
"A sharp correction in property prices may support a revival of demand over the longer term," it said.
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