Demonetization Effect: Easing of land prices to boost affordable housing

Post-demonetization, the affordable housing segment will get a much-needed boost. Confined to the fringe areas of metros, this segment is expected to get a boost as land prices will plummet in the next few years, especially in far-flung areas around Indian metros, and the tier-II, III cities. Most agricultural land transactions involved a cash component, which got affected after PM Modi’s announcement on the evening of November 8. INR 500 and INR 1000 notes ceased to exist as legal tender from November 9. Land dealings involving a cash component, therefore, will no longer be carried out in the old ways. Those dealing in cash will be unable to pay in the old currency notes and those with undeclared sources of income would fear paying entirely in white as that will carry a risk of attracting the I-T department’s scrutiny. While the areas within metropolitan limits will be saved from land devaluation due to their high-demand and low-supply scenario, their poorer cousins – the fringe areas – will see an impact after a year or so. As land prices ease in these areas, ticket sizes of apartments are also expected to come down. This should help bring house prices closer to the affordability of many salaried home buyers and spur real estate demand – this time, driven largely by end users and not speculative investors.  Housing in certain precincts to become more affordable than others

• There is a high possibility of prices softening in sub-markets or precincts located away from the city centres and which have seen a lot of housing supply in recent years. For example, in Mumbai metropolitan region, precincts such as Vasai-Virar, Palghar, Kalyan-Dombivli, Shilphata and upcoming locations around Panvel have a lot of supply.

• Tier-II and III cities, especially those driven by business communities, such as Jaipur, Surat, Indore, etc., will see higher impact of demonetization and easing in land prices in the medium-to-long term. Certain projects in Kolkata’s northern sub-market may witness price reduction in the next three-four quarters. Vacant land in the north of Kolkata, along BT Road (outside its municipal limits), would see easing of prices in the next one year.

• In Hyderabad, precincts like Uppal, LB Nagar, Shamirpet in the eastern sub-market has more plotted developments and row houses than residential apartments. Therefore, the cash component in transactions is also relatively higher, and due to consistent delays in the metro project, there is a possibility of price correction here.

Other cities also have fringe areas where prices will ease. However, such locations will need to be observed over the next six-twelve months to understand by when, and what margin, the prices there will soften and local demand-supply dynamics could bring about a change in some of these areas.