3 Reasons- “Why the Real Estate Sector will continue to Shine post demonetization”.
On November 8, Prime Minister Narendra Modi announced demonetization, that is permanent withdrawal of Rs 500 and Rs 1000 notes. He did this with an aim to curb black money and turn India into a cashless economy. As the Demonetization of Indian currency took place, the internet & major news channels bombarded the general public with the news indicating the fact that the slowdown in the real estate sector was inevitable.
Few days after the demonetization, Indian Express released a report where the headline was- ” Real estate sector takes a hit after demonetization”.
Profit.ndtv.com also wrote- “Real estate sector, particularly resale market, will be adversely impacted in terms of pricing and demand following demonetization of Rs 500 and 1,000 notes, according to property developers and consultants.”
But we believe that real estate sector will continue to shine post demonetization. We also believe that the mainstream media exaggerated few facts. Here is our reasoning:
Demonetization will instill transparency-
In the past , educating the client with regards to the availability, pricing , market trends & history of the property & the builder, was really not part of the value proposition. This system lead to a lack of transparency most of the times. However after Demonetization, transparency will be instilled as consumers will be able to view and process the practically of the information put up by the builder or the agent. Combined with Real Estate Regulatory Act, Demonetization will empower the common man with the right of getting accurate Information of the project and the developer before buying any property.
In short, post demonetization customers will be in position to question themselves-
- Is it the right time for me to buy a home?
- How much should I offer and what terms should I propose?
- What are the best financing options available to me?
Here is what the CBRE Chairman believes-
The CBRE Chairman, Anshuman finds Demonetization to be a bold move and mentioned that it would have a very positive impact in the long run. According to him, this move would increase the confidence of investors in real estate market as there could be more transparency in every transaction. The GST and Real estate Regulatory Bill would add to this transparency.
Lending Interest Rates will see adjustments-
Due to the high lending rates offered by most of the banks, many city dwellers refrained themselves from buying homes. But, with demonetization, this situation will change. Why?
- Home loan rates will fall-
As per the Times of India, due to the activity of demonetization, a large amount of cash in circulation will come under the scrutiny of the formal banking system. This will reduce banks dependence on higher cost borrowings. This will then drive these institutes to slash the MCLR (Marginal cost of funds based lending rate) which will then accelerate a fall in home loan interest rates because CASA ratio gets engaged in the computation of MCLR.
As per Business standard.com-
“ Flushed with funds after demonetisation, banks have started reducing their lending rates. Punjab National Bank, the Union Bank of India and the State Bank of India (SBI) has already announced a cut in their benchmark lending rates. Consequently, SBI has reduced its home loan rates by 50 basis points (bps) for loans up to Rs 75 lakh. The bank now offers home loans at 8.65 per cent instead of 9.15 per cent for all borrowers except women who have an additional relief of 5 bps.”
So as the home loan rates will fall, city dwellers will be in position to take loans at lower interest rates and purchase a house.
- Budget friendly homes will become available-
Times of India in their report also talked of a surge in the “Affordable Housing segment” for attracting the buyers. Basically, the report talked of the real estate agents attracting buyers by promoting the affordable housing segment.
By Affordable housing are meant houses that can be bought by spending below Rs 50 Lakhs. As mentioned that the home loan rates are there to fall. So everyone will be in a position to buy homes for them. Therefore developers will concentrate on developing “affordable” integrated townships as their aim would be to sell more and provide the buyers the maximum value for their invested sum.
Thus, if you have been thinking of getting a residence of your own, it is the best time to make a move towards it, as you are likely to acquire both value and quality.
CREDAI believes that the move will clean up real estate sector-
There is a positive statement from the Confederation of Real Estate Developers’ Association of India. While talking to the Hindu.com they mentioned that the Demonetization move will clean up real estate sector.
Also they said-
“The recent demonetization of Rs.500 and Rs.1,000 by the Central government holds out the promise of bringing down land prices and would thus be beneficial to the organized construction sector”.CREDAI members who spoke to The Hindu also pointed out that the hardest hit by the move would be ‘land brokers,’ the middlemen in land dealings who often hold buyers and sellers to ransom.
All this will lead to clean up of the real estate sector that will in long term help both buyers as well as the sellers.
To Summarize, post demonetization the real estate sector will undergo revival for betterment. So if you are a real estate developer/buyer, keep your hopes soaring high and inhibitions clear.