Realty sentiment down to demonetisation levels; future 'pessimistic' for first time in 22 quarters

Stakeholders continue to be pessimistic due to overall economic slowdown, slump in domestic consumption and drying credit flow to developers

In the September 2019 quarter, real estate stakeholders' sentiment has plummeted to a level of 42, according to a joint survey by National Real Estate Development Council (Nardeco), Knight Frank and industry body FICCI. This is almost similar to the level seen during the uncertain pre-election period in the March 2014 quarter and demonetisation, when it stood at 41.

The future sentiment for the next six months (49) too has turned 'pessimistic' for the first time in 22 quarters, indicating that the sector is under immense pressure.

A score of over 50 signifies 'optimism' in sentiment, a score of 50 means the sentiment is the same or 'neutral', while anything below shows 'pessimism'.

The stakeholders are wary owing to the overall economic slowdown and the slump in domestic consumption. Drying credit flow to developers due to the NBFC crisis and slowing down of the economy to 5 per cent in the June quarter - a five-year low - have all affected the sentiment scores.

"The real estate stakeholders' sentiment has gone in the 'pessimistic' zone for the current quarter owing to poor demand side performance, despite a plethora of measures by the government. And for the first time, the stakeholders are wary of the future six months, for the real estate sector and the overall economy, thus pushing the sentiment score in the red," said Shishir Baijal, Chairman and Managing Director of Knight Frank India.

Measures taken by the government, such as slashing corporate tax rate to 22 per cent, liquidity support to HFCs and NBFCs, and creation of a stressed asset fund (AIF) of Rs20,000 crore to boost liquidity and revive demand, have failed to infuse confidence in the market.

"Measures have been announced by the finance minister in an attempt to sort out the supply-side challenges. However, these measures are mostly focused on the affordable housing segment, leaving out the vast majority of non-affordable (units). The real challenge lies on the demand side, where end-users are unwilling to make home purchases owing to lack of financial confidence. The supply-side sops will not be enough till demand is revived by putting money in the hands of the consumer and his confidence is restored," Baijal added.

Niranjan Hiranandani, National President, Naredco, and founder of the Hiranandani Group said that in the supply side, with the short-term liquidity squeeze prevailing in the economy, even positive net worth companies across industries are turning into the negative balance sheet. "This is one important area that needs immediate attention. The current economic scenario makes it the right time for RBI to announce its one-time rollover scheme similar to what was rolled out during the Lehman crisis period in 2008," he said.

Sanjay Dutt, MD and CEO, Tata Realty and Infrastructure, and Chairman of FICCI Real Estate Committee, said that instead of incremental small steps, it is time for a quantum leap in policy planning and implementation. "The government needs to ensure a stable, predictable, business-friendly environment that not only ensures economic growth but also leads to job creation and income stability," he added.

Moving beyond the accolades of signed MoUs, fast-track efforts are needed to ensure the deployment of committed investments. "Accelerated use of digitisation is one aspect that can meaningfully lift the current constraints and improve efficiencies. We should aim to build an India story that stands for both in ease of doing business as well as sustainable profitable growth," said Dutt.

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