Note ban will hit property sales by 20-30% this year: Fitch

Mumbai: Disruptions caused by demonetisation and the general caution on the part of buyers will hit property sales in India by at least 20-30 percent in 2017, Fitch Ratings said in its latest report.

"We expect home prices also to decline this year because demand for residential property has weakened significantly in the fourth quarter of 2016, following the demonetisation of large denomination notes in November last year," said the ratings agency.

"The worst downturn in home sales is likely to occur in the first half of 2017. Demand is likely to recover moderately in the second half as festive season approaches, and because banks have cut interest rates on home loans by 50-60 basis points over the last 12 months to multi-year lows," it said.

"Demonetisation has made it harder for home buyers to use undeclared wealth for property buys. The number of residential units sold in the fourth quarter of 2016 fell 44 percent year-on-year, 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.

Fitch expected the largest cuts to selling prices in the National Capital Region where unsold inventory is the highest over 16 quarters of sales, followed by Mumbai, where it is 10 quarters, based on market estimates.

The NCR, it said, is 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. It expected demand for homes in Chennai and Pune to be less affected by the downturn.

At the same time, Fitch said, even as property construction was hampered for a few weeks after demonetisation, most homebuilders were able to work around practical issues related to making payments to suppliers and contractors, and construction has since resumed.

"Smaller and second-tier homebuilders across the country have also started offering discounts of around 25-30 percent to attract buyers."