A Boon or a Bane?
It is said that in India, ‘cash is king’. Now read this: in Indian real estate ‘cash is king’. Does it make more sense? Well, to be honest, it surely did... until the 8th day of November, 2016!!
Until Indian Government kick-starts the magnanimous Demonetisation project, arguably the boldest economical reformation call taken by any Indian Government till date.
Until recent times, the market largely eluded the middle and upper-middle class genuine homebuyers who didn’t manage to pay up large cash components as ‘down payments’, especially in luxury segment. However, in recent times, the sentiment reversed to a good extent with the introduction of RERA and middle-class buyers started feeling more confident and then came Demonetisation and strengthen the confident even further.
Long-lost dream & turning around
Mr. Prabhakar Kamath waited long to see price correction in the market because he couldn’t afford to pay Rs. 35 lacs for a 1 BHK home at his native place Bejai, Mangalore. The average EMI was going up to almost Rs. 30,000 and his total savings was not sufficient to pay up the down payment, which was about 15% of the property value. As he is working in Mumbai and was paying rentals, it wasn’t practically possible for him to buy a house in his hometown. Being 34 years old, he felt quite helpless in want of a shelter of his own and kept worrying about the future of his family.
Will Demonetisation help him to realize his dream? Possibly yes….
Firstly, most developers (majority of the leading brands have fairer in more transparent dealings earlier too) in the market would now have to avoid the cash component; hence Mr. Kamath would find deals where his savings wouldn’t vanish for paying the down payment. Secondly, many developers who do business in secondary market would probably now cut the price as the pilings up inventories need to be marketed. Therefore, with all possibilities, Mr. Kamath would have more options within his budget and may soon close a deal which fits his pocket. Thirdly, Demonetisation presents a ripe possibility that the banks may bring down the home loan rates, which will benefit buyers like Mr. Kamath who are in want of a cheaper interest rate to buy their first homes. And lastly, to boost the real estate sector, Government may look at better incentives for buyers in income tax slabs.
The Silver lining
Experts say that, the secondary real estate sector will definitely be affected by the Demonetisation exercise, as it has traditionally seen high involvements of cash transactions however projects by reputed and credible Developers especially in metros & tier I cities will remain more or less unaffected.
Until recently, Developers were more focused on luxury and upper-mid range segments, since investors were more money-spinning targets and ensured higher returns. However, now the market is visibly shifting in demand from big-ticket purchases to purchases by end-use customers. Affordable housing segment is suddenly the most important category, perhaps.
Once the initial crisis settles in the industry will surely thrive after re-arranging and re-adjusting within. Demonetisation will help institutionalize the real estate sector bringing more transparency. This step would give the Indian real estate sector more credibility making it more attractive to the foreign as well as domestic investors.
Demonetisation is arguably the boldest move by any Government in recent times. Though the real consequences on economy are yet to unfold but majority of Indians think that this move was long pending and applaud the Government to take this move in the right direction.
Authored: 9amstories editorial
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