Demonetisation And Real Estate Crash Down, Myths And Facts.

2018-03-27

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You might have heard and read this everywhere across television and newspapers. Are you also among the ones who withheld your decision to invest in this sector in order to wait for the ‘right time’? Did you try to dig in a little deeper to understand the whole situation?

The prices are sure to fall but…

ONLY of the luxury homes .This part of the real estate sector deals majorly in cash and it has traditionally seen a very high involvement of black money. Hence the demonetisation effect is bad on it. The real estate in tier II & III cities and the resale market are also facing the similar consequences, since the cash component in these transactions is comparatively more.

This only leaves us with a question mark for the affordable homes. What about them? Let’s take the example of Bengaluru. The answer to this is quite clear in Mr. P.V Rama Raju’s statement (CMD, Tekton Estates-Bengaluru)- “The profile of the real estate investor in such a cosmopolitan city is such that most are in the salaried class, who depend on bank loans to fund their transactions.” He also adds, “Real estate investors from the IT/ITeS background hardly depend on cash transactions.”

That’s right! As buyers, like you and me, we largely depend on home loans or other legal transactions as a source of payment, and there is very least involvement of cash. Hence the primary market where all transactions are carried out through legal channels is untouched. The impact of demonetisation on this portion of real estate is very low. No fall of prices in affordable homes anytime soon is expected.

Will the land prices fall?

Just like Luxury and resale sector, the cash component in land purchases is heavy. So it is estimated that land prices will fall. However we have to keep in mind that buying and selling is a private affair and fall in the land rated is expected only due to gap in demand supply, which experts believe land prices will fall over a period of time

The good news

With the drastic increase in the amount deposited in the banks, the rate of interest on the loans too are soon to come down. As the rate of interests on the loans is one of the ways banks make profits, therefore, the banks will strategise to decrease the rates in order to attract more customers to take loans increasing the demand especially in affordable sector.

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