India’s property sales to fall in 2017 owing to disruption caused by demonetisation, says FitchRatings

Fitch Ratings in its latest report mentioned that the property sales in India to tumble by at-least 20-30 percent this year, owing to the disruption caused by demonetisation and general caution on the part of buyers. The rating agency said that the homebuilders already have high levels of unsold inventory and are likely to cut selling prices as demand weakens.

We expect risks to homebuilders to rise further this year, with leverage likely to increase and liquidity to tighten. Homebuilders with access to diversified funding channels are likely to be more insulated from the downturn, reported FitchRatings in its research note.

The rating company noted that the decline in home prices in 2017 as demand for residential property has weakened significantly in the last quarter of 2016, following the demonetisation of large denomination notes in November last year. Demonetisation has made it harder for home buyers to use undeclared wealth for property payments.

The number of residential property units sold in the last quarter of 2016 fell by 44 percent y/y, dragging down overall units sold in 2016 by 9 percent, based on data compiled by Knight Frank Research. The volume of new units launched fell by 61 percent y/y, reported FitchRatings in its research note.

The Fitch Ratings expect the largest cuts to selling prices in the National Capital Region (NCR) followed by Mumbai, where unsold inventory is the highest at 16 and 10 quarters of sales, respectively, based on market estimates. The NCR is also known to have the largest cash-based economy in the country, and therefore demand is likely to suffer more from the currency demonetisation than other regions. Also, demand for homes in Chennai and Pune to be less affected by the downturn, as unsold inventory is the lowest in these cities, at around 6-7 quarters of sales.