Government reforms like demonetisation, Goods and Services Tax (GST) and Real Estate Regulatory Authority dealt a blow to growth of physical assets like gold and real estate in fiscal 2017, said Karvy’s India Wealth Report 2017.
Growth of individual wealth in physical assets nearly halved to 5.92% in FY17 as opposed to 10.32% recorded in FY16. Real estate and gold accounted for 92% of wealth in physical assets. Individual wealth in real estate grew only 8.62% to reach Rs 60.25 lakh crore in FY17.
The real estate sector is going through a transitional period. Reforms introduced by the government will bring medium to long term benefits but the sector has been impacted on a short- term basis.
“The sector has been impacted in the short run due to these policy measures as customers are still in the wait-and-watch mode from the angle of confidence and transparency. For the developers, there is a 360 degree change of their business model because it’s a new era for them,” said the report.
Meanwhile, interest rates for home loans have also touched 8.3% to 8.4%, reminiscent of 2009-10 period. Sales in prime real estate locales like National Capital Region (NCR) and Mumbai Metropolitan Region (MMR) have fallen by 50-70% since the peak of 2010 and 2011. RERA has also reinforced customers’ confidence in timely deliveries by the developers. Developers are optimistic that the sales volume will increase eventually.
Similar to real estate, gold demand was massively impacted post demonetisation in 2016. It recovered slightly in the January-March period of 2017 before being hit by the implementation of GST.
“Total wealth held by individuals in gold was Rs 68.45 lakh crore in fiscal 2017 with a marginal growth of 3.86% as compared to 15.31% last year.
Purchase patterns have also undergone drastic changes. “As awareness is increasing consumers are opting for purchasing digital gold at market-linked prices over buying physical gold coins. Some e-payment firms have introduced ‘digital gold’ to facilitate buying of the commodity in digital form,” the report said. Also, sovereign gold bonds are also being encouraged to allow buyers to hold gold in the paper form.
For the future, the report predicts individual wealth in physical assets will grow to Rs 236 lakh crore by fiscal 2022 and real estate and gold will get their shine back.