Cash Crunch Crushing Residential Housing Market 
Residential and commercial buildings stand in the Byculla area of Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Cash Crunch Crushing Residential Housing Market 

The cash crunch has brought the residential real estate market to a standstill.

From a growth of seven percent in sales volumes in the first six months of 2016 to a decline of 23 percent in the second half of the year -- that’s how badly demonetisation has hurt the realty market in top eight cities, a report by real estate consultant Knight Frank India has said. New launches fell by a steeper 46 percent in the second half, the report adds.

Knight Frank pegs the fourth quarter of 2016 as the worst three months for real estate in six years. Sales fell 44 percent and new launches plunged 61 percent during the quarter.

These numbers are an indication that 2016 has been the worst performing year in terms of sales volume in the recent history, says the report.

Cash Crunch Crushing Residential Housing Market 
The fall in sales volume and new launches were so severe during Q4 2016, that it brought down the entire H2 2016 numbers, down by 23 percent and 46 percent respectively, compared to H2 2015.
Knight Frank India Report 
Cash Crunch Crushing Residential Housing Market 

Pune, however, stood out, with sales volumes jumping 29 percent in July-December 2016, the report said. Though the city saw a 35 percent decline in the fourth quarter due to cash crunch, higher sales and new launches in October cushioned the impact.

Cash Crunch Crushing Residential Housing Market 

Shortfall In Stamp Duty Collection

As per the report, the notional loss on stamp duty collection witnessed by various state governments was close to Rs 1,200 crore.

Realty Check - What Next?

Currently, the biggest factor affecting the sector is unaffordability of home buyers as house prices till 2012 have significantly risen faster than income level. Therefore, developers need to review the prices, said the report.

The real estate consultant expects the Reserve Bank of India to cut rates by 25-50 basis points over the next three to six months, which would help to spur demand in house purchases.

Expectations From Union Budget

Fiscal incentives on home purchases could boost demand in the sector.

“Any move by the Government of India to increase the limit on tax exemption on home loan interest and principal amount payment in the upcoming budget could provide the much needed fillip to the ailing sector”, said Knight Frank India.

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