Demonetisation by our
Prime Minister Narendra Modi is one of the boldest decisions taken by
Independent India in Last 69 years. This decision will play a crucial role in
India’s growth and development in the years to come.
Among the various
positives and negatives of Demonetisation, various news articles and reports by
experts have emerged that Real Estate will see a massive price correction and
people must wait to buy before the price correction occurs.
It is wrong to
consider the entire Indian Real Estate as one. Indian Real Estate has various
classifications like affordable or luxury; authorized or unauthorized; primary
market or secondary market; tier 1 or tier 2 or tier 3 cities; agriculture land
or urban land; end user market or investor market etc.
It is important to
consider certain facts before accepting or rejecting something on the face of
it.
In primary market
(where buyer buys directly from the builder or colonizer or authority), mostly
the purchasers are end users who are buying property to make it their home or
as an asset class to hold it for long term. This holds true in todays scenario
because investors are absent from market since almost 3 years due to market
being stable.
End user market is
growing on back of Home Loans availability. Buyers pay 10-20% margin money and
take the balance Home Loan to fund their purchase.
Due to Demonetisation
banks are expected to get deposits of approx. 10 Lacs Crore as per the estimate
of the Government and with this kind of liquidity and cost of funds going down
for the banks, the rate of interest of Housing Loan will most probably go down.
This will not only result in lower EMI but also increased Loan Eligibility for
an actual Home Purchaser.
From the past
experience when the Home Loan rate of Interest was in range of 7.5-8%, the
Indian Real Estate had seen the maximum growth and boom.
Banks have already
reduced their deposit rates.
Hence we can infer
that with demonetisation and banks reducing their rate of Interest, primary
real estate market will in most probability
grow and demand will increase in end user driven markets.
This hold more true
for affordable home segment market for areas like Raj Nagar Extn. Ghaziabad,
Noida Extn., Bhiwadi, Faridabad where home purchasers are mostly the first time
purchasers and property cost is below 50 lacs.
Already the government
rules did not permit to take cash more than Rs.20,000=00 in the property
transaction. Hence the cash component was almost negligible in the primary
affordable home segments.
Demonetisation will
definitely impact unauthorized construction, secondary market sales where some
component of cash might be present and with less cash liquidity in hand, they
will also move towards complete cashless mechanism.
Real Estate industry
contributes more than 7% to India’s GDP and supports more than 360 ancillary industries
and is the second largest employer after agriculture in India.
In the longer run, we
will have more tax payers and increased tax revenue for the government which
might result in lower taxation as a whole.
All the developed
economies in the world are cashless economies and day is not far when India
will be counted amongst the Developed Countries.
No comments:
Post a Comment