Demonetisation to bring prices down

Demonetisation to bring prices down
21/11/2016 , by , in News/Views

A significant reduction in black money in the economy following the government’s decision to withdraw old higher denomination currency notes may have a substantial impact on the real estate sector as the move can reduce the number of unaccounted transactions in the secondary market to a great extent. But that comes as good news for homebuyers as a decline in such transactions in the sector will lead to price rationalisation.

While there are broad expectations that RBI will go for a 25 basis point cut in repo rate in December on the back of softening CPI inflation, some say that it can go for a 50 basis points cut too on the back of latest government action. “The demonetisation measure will lower aggregate demand in the short term as the economy adjusts to the short-term pains in transactions. Further downside to growth as a result of slowdown in real estate and related sectors, retail trade, and some consumer durables cannot be ruled out. This will likely prompt the RBI to support the economy through possibly front-loaded additional rate cuts. This supports the probability of a 50 bps rate cut in December,” said a report released by Kotak Institutional Equities.

Deepak Parekh, chairman, HDFC Limited said that he expects the price of real estate to come down in the medium term. The fall, if comes, will be on the back of an already weak real estate market which has failed to take-off over the last two to three years and the industry is saddled with high unsold inventories across all major cities.

Shishir Baijal, chairman and MD, Knight Frank, said that while the broader impact in the long term will be positive, there will be serious repercussions in the near future. “There will be a substantial downward pressure on the volume, number of transactions and prices in both residential and land markets,” said Baijal. He further said that impact will be more widespread and the tier-II and tier-III markets will take a larger hit.

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