Demonetisation dampens sentiments of real estate sector

The OSI index recorded a reading of -3 in the Q4 (October-December, 2016). It represents the weakest number reported for this indicator since the end of 2013.

Demonetisation dampens sentiments of real estate sectorMUMBAI: Demonetisation of high value currency notes of Rs 500 and Rs 1000 has dampened sentiments of the real estate sector across India, which until now had been comparably more upbeat than most markets in Asia, according to RICS’ Global Commercial Property Monitor.

Both the Occupier Sentiment Index (OSI-an index that shows supply, demand and rent expectations) and Investment Sentiment Index (ISI), an index capturing overall market momentum) readings turned negative in the National Capital Region and Mumbai after demonetisation, it said.

The OSI index recorded a reading of -3 in the Q4 (October-December, 2016). It represents the weakest number reported for this indicator since the end of 2013. Demand for retail property fell over this period. Office space was more sought after though the rate of demand growth appears to be moderating.

Said Sachin Sandhir, Global Managing Director – Emerging Business, RICS In India, said, “In India investment demand fell over the quarter, while demand from occupiers was stagnant, pushing both OSI and ISI readings into negative territory for the first time since 2013. While the Occupier Sentiment Index and Investment Sentiment Index stayed modestly positive in Bangalore, respondents said they have lowered their expectations for capital value and rental growth significantly over the next twelve months.

While capital value and rental growth are expected to increase, the pace of expected gains has moderated.”

The India Commercial Property Monitor asked respondents whether the policy move would have a negative impact on the office space sector. “Only around one quarter of respondents felt this to be the case. Rents are expected to show very little increase over the next next 12 months. The exception to this trend is the prime office segment of the market’’ said the report.

When asked whether respondents believed demonetisation would result in a drop in real estate prices, a significant minority (45%) said that this will be the case. On the other hand, a majority (51%) did not feel this would be the case, while the remaining 4% did not have a view at this stage. “Respondents expect a modest increase in capital values over the next twelve months with the headline projection scaled back from 4.5% to 2%. While some concern was expressed over the near term outlook linked to the demonetisation programme, the office sector is being seen as resilient enough to be able to withstand demonetisation,’’ it said.

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