Demonetisation and its effects on Real Estate

Demonetisation and its effects on Real Estate
30/11/2016 , by , in News/Views

During the past few months,a question was floating in the industry that what will be the implications of RERA on the real estate market. Currently questions are coming on the impact of demonetisation also. It’s a very complex subject and to predict the market forces would be hard. I am sharing my opinions on the same.

The steps taken by the government are in the right direction. The underlying purpose of RERA is to bring transparency and information to the consumer, timely delivery, and financial discipline in management of customer advances. Demonetisation will reduce black money in real estate transactions and therefore reduce unscrupulous deals. RERA coupled with demonetisation will make buying and selling homes transparent and easier. The industry will ultimately become more organized and better regulated.

The government steps to make real estate transaction easy and transparent with RERA as well as by reducing the black money with demonetisation will make it easier to buy a home or invest in it.

The first reaction of many people after demonetisation is to wait and watch, but all of us should understand some other impacts on the economics of real estate to take a more informed decision.

1) Reduction in supply – RERA and demonetisation will have a midterm effect on reduction of supply. RERA will make new developers and existing developers to do less projects as it creates a forceful discipline on utilization of funds and creates barrier for new players. Demonetisation will remove informal funding available to the industry and therefore reduce supply.

2) Home loans will become cheaper – In the near term, demonetisation will lead to lower inflation, which will reduce interest rates. This means a person who could earlier take a loan for 30 lakhs may be eligible for say 33 lakhs. This will be beneficial for the current loan holders also as their EMIs will automatically decrease with a shift in the interest rates.

3) Demonetisation along with RERA will make the industry more customer friendly and increase trust. Therefore, those customers who were earlier refraining from purchasing under construction properties will start purchasing homes.

4) Demonetisation will increasingly formalize the economy and the industry. This will make it much easier for the salaried Indian middle class to purchase homes without the hassles of providing black money for transactions.

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