Post Demonetization, Mixed Signals Concerning Property in Gurgaon

Sale of property in Gurgaon continues to be hampered by the demonetization of high value currency notes that took place more than three months ago. The largest property markets in India, namely Gurgaon, Noida, New Delhi and the Mumbai Metropolitan Region have yet to recover to normalcy three months post demonetization.

The MMR and the NCR are two of the most expensive real estate markets in the country and thus, unsurprisingly, these markets have remained the most subdued since the government took action to crack down on black money in the country.

Not Helped by Union Budget

Even as the government cracked down on black money using demonetization; investors and those who owned property in Gurgaon and the MMR had hoped for a stellar Union Budget that would cushion the blow dealt to wealthy owners of property in two of countries wealthiest and largest property markets.

There was however disappointment in many wealthy segments of the populace as the Union Budget of 2017 catered more to providing affordable housing in Gurgaon and in other cities to lower income groups rather than providing tax breaks and incentives to the wealthy.

Not All It Seems May Be Lost

Till today there are conflicting reports emerging from those who are actively working in the countries largest real estate markets. Statements to the effect that enquiries for properties have started have been heard, however many builders and developers in Gurgaon insist that business has ground to a halt. It has, however, also been elicited that buyers eager to own a home financed by lenders are making offers to buy properties in Gurgaon.

Expectations Driving Market Sentiment

Experts and real estate gurus are of the opinion that buyers are expecting a huge price correction among properties in Gurgaon and in the MMR. Such sentiment is likely the cause of the buying freeze in two of largest property markets in the country. Buyers feel certain that if they wait a few months longer then prices will have to fall; conversely they feel that if they buy today and prices fall a few months down the road they would in effect incur a loss on any property in Gurgaon and the MMR they purchase today.

Impact of Higher FAR on Residents and Property in Gurgaon

The increase in the Floor Area Ratio (FAR) upon property in Gurgaon will lead to the creation of a larger number of units within the same area, however by crowding more and more of humanity in a smaller and smaller area, Gurgaon will become overcrowded and resources will become scarcer.

Advantages of a Higher FAR

An increased FAR means that more homes can be built on the same amount of land, this will lead to falling prices for housing units and lead to more affordable housing for more segments of society. Considering that nearly all 3 BHK flats in Gurgaon now cost upwards of one crore rupees, lower priced homes would make the city far more inhabitable for middle income and even lower income segments of society.

Learning From the Past

Last year Gurgaon suffered due to waterlogging brought about by a large amount of rainfall, with a larger mass of humanity in Gurgaon, the already poor physical infrastructure in Gurgaon will be tested further. Those who live in real estate in Gurgaon can vouch for the extreme distress faced by residents last year because of the monsoon rains which made Gurgaon’s roads difficult to navigate. If more people begin vying for the same limited infrastructure, later monsoons may inflict even more chaos on Gurgaon’s roads and arteries.

On the Positive Side

An advantage for builders in Gurgaon due to a higher FAR will obviously be the ability to build more on the same piece of land and hence earn greater revenues on every project. Additionally luxury projects in Gurgaon will become even more lucrative for the cities developers at the same time as such units become more affordable for buyers.

Gurgaon is a hotspot for employment and many commute daily from across the city to work here. However such commutes to and fro work may take up to three hours per day as living in Gurgaon is often not feasible for the common man. A higher FAR will lead to lower prices for apartments in Gurgaon and open up the cities real estate market to more segments of society.

The Downside of a Higher FAR

Not only would a higher FAR lead to more pressure on Gurgaon’s inadequate physical infrastructure, it would also lead to greater demand for power and other utilities which would have to be provided for more homes on a smaller area of land. A higher FAR and more apartments in Gurgaon would also lead to more environmental degradation and increase the impact of pollution.  

Gurgaon will soon have smaller and affordable houses

The size of the 2BHK apartments in Gurgaon are fast shrinking as the builders are trying to counter the high prices of the property. The buyers can purchase these homes at a much lower price now as the builders aim middle-income consumers in the correct tick size.

The builders have started responding to the rising prices of the residential projects in Gurgaon .For a long duration, buyers have been a bay because of the high property prices.  But in contrast to the popular belief, the builders have not lowered the prices of the property. Instead, they have lowered the size of the homes. The regular size of the 2BHK apartments in Gurgaon has been customarily reduced from 1,200-1,500 square feets to 800-1,200 square feets. Plush residential are replaced by the compact homes in order to make them more affordable.

The IT sector has provided very less support in the city’s real estate market which witnessing fall in the housing demand for the past two years. The other 2 reasons which are dampening the sentiments of the market are-

1.    Delay in the project completion

2.    Slow rate of infrastructural growth.

The demonetization policy has further worsened the situation. This recent development has almost brought the sale transactions to standstill. So, reducing the ticket size and making them more affordable seems to a wise move at this point. This approach would make many people to buy property in Gurgaon. This is the second time that the sales of the residential have crashed to this level and the developers have to work on alternate ways to bring the buyers back to the market. The reduction in the average size of the apartments will lower the cost of the property considerably from Rs 75-82 lakhs to 60-65 lakhs for 2BHK apartments.

Well, this could essentially mean that Gugaon is all set to see an enhanced supply of 2BHK apartments. Presently, the segment captures less than 20% of the total market share. This means more than half of the market inventory is build in 3BHK units. However, this shift in the focus of the builders in Gurgaon will surely prove efficient in countering the falling sales.

This new strategy may initiate sales transaction in the city once again, however; this also implies that Gurgaon will soon lose the reputation as an upscale residential hub and will be known for affordable residentials.