Weak demand and declining sales could force a correction in property prices in 2017, according to ratings agency Fitch.
Fitch predicts that the decline in property prices will likely be more pronounced on sales of higher-end and premium property, usually targeted by high-net-worth individuals and investors, compared to entry-level homes sought by first-time homebuyers including salaried individuals.
"A sharp correction in property prices may support a revival of demand over the longer term," said Fitch.
The ratings agency expects residential property sales of most Indian homebuilders to see a sharp fall of at least 20 per cent to 30 per cent in 2017, following the government's demonetisation move which is set to "take a toll" on demand.
Property demand has already been sluggish in India because of rising number of unsold inventory and high prices, said Fitch, adding that it expects unsold inventory to increase this year as a result of weak demand, particularly in the National Capital Region, which it believes has the most significant cash-based economy. NCR had the highest unsold inventory – of around 16 quarters of sales as of June 2016 – while unsold inventory in Mumbai and Chennai was lower at around 10 and seven quarters of sales, respectively, it noted.
Fitch expects the credit profiles of most homebuilders to weaken in 2017 as declining sales could mean cash collections will lag construction commitments. This, it said, is likely at companies that have aggressively expanded their land banks in the last two years using cash collections from previously sold properties.
Fitch has downgraded its outlook for Indian homebuilder market to negative for 2017 from stable last year.