Impact of demonetisation on real estate recedes

States' revenues from stamp duty, registration fees give a useful way of examining trend in deals

By all accounts, the cash-intensive real estate sector was badly hit by demonetisation. Sales plummeted as buyers postponed making decisions. But, is the worst for the sector over?
 

A Business Standard analysis of month-wise revenue collection from stamps and registration fees of eight large states shows while revenues have contracted in every month from November to March, the pace of contraction has eased off in the past few months.  

Revenue collected by states from stamps and registration fees provides a useful way of examining the trend in real estate transactions across states. The eight states examined are Andhra Pradesh, Gujarat, Haryana, Karnataka, Tamil Nadu, Telangana, Uttar Pradesh and Uttarakhand. 

At the aggregate level, data show revenue collected from stamps and registration fees had actually begun to slow down in the months prior to demonetisation. After growing 36.8 per cent in August, revenue growth slowed down to 8.6 per cent in September and further to 2.7 per cent in October. But, after demonetisation, revenue collection collapsed. 

Revenues contracted by 13.1 per cent in November – the month when demonetisation was announced. The pace of contraction accelerated in December, with revenues contracting by 41.6 per cent. This contraction continued unabated in the fourth quarter of 2016-17 though the pace of contraction did lessen in the subsequent months. 
 

Revenue collection contracted by 25.9 per cent in January, easing to 19.4 per cent in February. In March, the contraction in revenues was down to 12.7 per cent. “The impact of demonetisation was definitely felt after the announcement of demonetisation — from November 8 onwards till the end of February. But, March was a good month,” says Anuj Puri, chairman, JLL Residential. “The pain was felt the most in the months of November and December. In January, one began to see a pick-up in site visits. In February, negotiations began, with deals being closed in March.” 

While the pace of contraction does seem to have eased, one should caution from drawing a firm conclusion as the March numbers are provisional and are only available for four of the eight states analysed here. A few states though have defied the aggregate trend. 

Month-wise revenue of 8 states

Both Haryana and Telangana saw revenues expand in November. The former saw revenues grow 11.6 per cent, while the latter saw its revenues shoot up by a staggering 35.2 per cent. Uttarakhand was the only state that did not see its revenues contract in December. 

While data for Maharashtra, with Mumbai having a large real estate market, also show a contraction in the months after demonetisation, the state's numbers also include revenue collected from stock market transactions. As such, it is difficult to attribute the slowdown to note ban alone. Month-wise data for Delhi is not available. Estimates of gross domestic product released by the central statistics office also showed gross value added by the construction contracted by 3.7 per cent in the fourth quarter of 2016-17.

Experts contend that the impact of demonetisation on the sector is now fading away. “The demonetisation impact now appears to have gone away,” says Puri. “The issue now facing the industry is Real Estate (Regulation and Development) Act which is likely to lead to slower growth of new construction. RERA will lead to consolidation in the sector. This will lead to fewer launches,” he adds.

Others concur

“Post-demonetisation, sales slowed down considerably as people postponed decision-making due to the underlying uncertainty. Things have now started to come back to normal,” says Anshuman Magazine, chairman, India and southeast Asia, CBRE. “RERA will lead to a slowdown in projects initially. Construction activity will slowly pick up. The government’s push to affordable housing and new investments in infrastructure will push up activity,” he adds.