Demonetization of 500 and 1000 notes came out as a surprise for India on a fine night of November. Amidst much chaos of what would happen next, experts started speculating the fate of India real estate industry which is said to be a major absorbent of black money. Though many said that the property prices would fall and real estate would dwindle, there is actually a bright side of it, majorly for the primary real estate market.
In an interview with Radio Mirchi, Investors Clinic Director- Mr Sunny Katyal spoke on the issue and assured that there is not a single reason to panic because of demonetization. It is, in fact, a ray of hope for real estate.
The real estate market in India can be broadly divided into primary and secondary market. The primary market is an organized one where rules are followed, clear declarations are made and fair dealings exist. The secondary market is an unorganized one which consists of local brokers who sell mainly plots, kothis, agricultural land, etc. Since about 95% of real estate belongs to the unorganized secondary market, people think that the entire ecosystem is ruptured. But this is not the scenario as long as you are dealing in fair, legal tender.
So, demonetization is actually an advantage for primary real estate-
1- No Scope for Price Correction
It should be noticed that the real estate market is already at its best price and there is no margin for price correction. Whatever correction was possible has already been made in the last one year. So there is virtually no scope for price correction.
2- Increased Liquidity is Beneficial
Practically, demonetization has taken back surplus liquidity from the market to the banks. Higher cash in the banks will lead to more liquidity in the economy in future. This has a number of advantages-
Higher lending capabilities of financial institutions leading to more funds for real estate
Lowering of interest rates thereby making money cheaper
Interest rates expected to come down to 7% in near future
EMIs will also come down which means it will be easier for people to compare rentals and EMIs
Higher affordability in the market means greater purchasing power and financial credibility in the existing income
Encouraging people to file tax returns and they will resort to home loan as a tax saving vehicle
Investors will get greater ROI on property buying
Infrastructure will be boosted as government will receive more amount in terms of tax
3-Conducive Environment for Home Buying
Reduced interest rates will automatically encourage more people to buy real estate. Needless to say, there is shortage of home in India and now that the interest rates will fall, people will think of borrowing funds from banks in the form of loans without any increase in their income. Increased affordability means more home buying capacity.
4-Safer Dealings Due to RERA
Real Estate Regulatory Authority (RERA) is now available to look after the industry and ensure fair dealings and safer transactions. Developers will be bound to make structured launches thus mitigating the risk. It is a major step towards transforming the Indian real estate industry and making it a more transparent business.
Last but not the least, if you are dealing with the organized market where purchases are routed through banks, you need not worry. Demonetization has brought a ray of hope for the industry.
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