Demonetization And Its Impact On Real Estate Sector:
Demonetization has sparked unwarranted fear in the mind of many who did not understand the concept quite well. Real Estate is one sector that has been supposedly hit the hardest but in the long run the fear does not seem to be a very rational. There are various positive impacts on the real estate sector post demonetization.
The impact of demonetization on real estate sector should be seen from short, long as well as medium term perspective.
Slowdown in the short term
There is no doubt that quelling of 500 and 1000 currency notes have sucked the liquidity out of the real estate market. However, this is not the sector specific case and impact can be seen across all the businesses. Due to dried up liquidity, demand of homes have come down drastically. The severe impact is more visible in cosmopolitan cities such as Delhi, Mumbai and certain tier II cities where the real estate market was booming. There is no denying that in short term the impact will be severe on housing and residential category as there would be delays in the completion of the projects and handling them over to the the users.
Medium term impact
In the middle term, the demonetization will lead to lower inflation in coming 2-3 quarters. However, it is crucial that the government does not slow down the pace of reforms and policy implementation. Further, if RBI cuts down the repo rate which, the home buying appetite of the salaried class will increase.
Secondary market will be hit the hardest as the difference between the circle rate and market rate will narrow down, average ‘ask price’ will come down thereby impacting the price of the house across the cities. Now, with so much happening in the secondary market and resale value coming down, primary market will also have to reduce the prices of the new properties. Therefore, consumer will have the much needed power of buying an affordable house and be free from the harassment of various real estate companies.
For the real estate firms, it will be good because the companies will see growth in the number of potential consumers who are looking for affordable homes and most importantly the transaction will be all white money. Therefore, real estate firms who develop and sell the affordable house will have the larger share of pie as the demand will rise.
Long Term – Cleansing the system
Real estate sector will be more transparent and would better serve the consumers those who are actually in the need of a house and not the black money hoarders who keep on buying benami property and converting their black money into white.
On the one hand demonetization will cleanse the sector and on the other hand government will support the sector by implementing various acts such as Real estate act along with GST. These amendments mean that project approval time will be cut down drastically resulting in declining cost of construction. Moreover, the demand of various projects and housing schemes with per unit cost coming down drastically.
Real Estate sector would experience a reform with black money kicked out of the system and the property trades moving online.