Affordable homes: effect of demonetization
Owning a house is a dream for many and remains a dream due to the high property rates especially in urban India. Inflation in property has been the highest and real estate is a lucrative business due the ever increasing prices. Due to this most city dwellers are forced to live in rented apartments. However, all that is set to change sooner than later. Government’s decision to clamp down on black money by demonetizing 500 and 1000 rupees notes came as a bolt from the blue. This took many by surprise and one of the hardest hit is undoubtedly real estate business. Real estate is an industry where builders, resellers as well as home buyers insist on cash payments. Therefore, a lot of black money gets parked in this industry.
Demonetization is expected to deliver a body blow to the practice of cash payments in property deals. Another positive effect will be in the reduction of interest rates. As a direct result of lowering of interest rates on housing loans those who were unable to afford the high EMIs can also now buy houses using this mode. Builders are increasingly turning towards the ‘affordable housing’ sector which will definitely bring much needed relief for house hunters. Many states are set to implement Real Estate Regulatory Act. This would bring in more transparency as the Act has buyer friendly provisions. This Act would protect the buyers from several unscrupulous practices employed by the builders such as delays in construction and hand over etc. Let’s take a look at what awaits the housing industry.
All major cities have seen a drop in launches which essentially means lesser constructions. Housing Industry experts say that these developments will create a lull in the housing market in the coming months. There will be an impact on sales that involve exchange of cash and that will certainly bring down land prices. When land prices come down then automatically housing will become cheaper. As it is developers have to deal with the problem of sluggish sales which has pushed up inventory levels. Demonetization has further impacted the inventory levels and therefore both developers as well as sellers will lower the prices to ensure higher sales.
However, this would impact only the secondary market. Projects undertaken by reputed and credible developers in the top eight Indian cities will remain unaffected to a large extent. This is because most buyers opt for the home loan route and hence go through proper legal chances thereby reducing black money involvement. Demonetization will also benefit those who are house hunting in the high-end or luxury housing market. Huge amount of cash payments are a norm in the luxury housing segment. However, with Government clamp down, sales will nose dive and thus push prices downward. In addition to all this taking a housing loan will be cheaper now. Lending rates are expected to fall. As a result of demonetization, huge amounts of cash in circulation will now be brought under the formal banking system. Banks having excess liquidity would sanction more home loans thereby benefiting consumers. All in all this demonetization seems to bring happy news to house hunters.