Why property is likely to be cheaper after demonetization

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For many city dwellers, owning a home is always a distant dream. Unaffordable real estate prices compel them to stay in rented properties instead. However, several events and trends taking shape now could soon turn that dream into a reality.

The government’s surprise move to clamp down on black money hoarders through the ban on Rs 500 and Rs 1,000 currency notes is expected to have a cooling effect on certain pockets of the residential market in the country. The housing market is a hot-bed for the indiscriminate use of black money. Many developers, resellers and homebuyers insist on having hard cash as a component of payment in real estate deals.

The recent ban on high value currency notes is expected to deal a body blow to this practice. Another likely side effect of the move is a down ward pressure on the interest rate structure. This would come as a relief to people who cannot afford the high EMIs on housing loans. In addition to these factors, many developers are also aggressively turning towards the affordable housing segment. This effectively opens up another avenue for those who find themselves priced out of the housing market in metropolitan cities.

Further, with many states likely to enforce the buyer friendly provisions of the Real Estate Regulatory Act, home buyers can expect more transparency. This would also provide them protection from delays in construction and handover, as well as other unscrupulous practices employed by developers. In the following pages, we will outline the opportunities these developments are likely to present for home buyers, and delve into the emergence of the affordable housing segment.

Industry experts believe that the housing market will experience a lull in the coming months, as these developments take their toll. Homebuyers can expect property prices to come down in certain pockets, which would provide an opportunity for them to make their move.

As CARE Ratings points out in its report, developers are already grappling with the problem of slow sales, which is leading to rising inventory levels in all major micro markets. Given the growing uncertainty and negative impact on demand caused by demonetization,people are likely to postpone their plans to buy property, which would lead to further increase in inventory levels. As a result of this, developers and sellers could be compelled to cut down prices to drive sales. Most experts are of t ..

Ashwinder Raj Singh, CEO, Residential Services, JLL India, says, “The real estate sector will definitely be affected by the demonetization exercise, as it has traditionally seen a very high involvement of black money and cash transactions. However, almost all such incidences have been in the secondary sales market, where cash components have traditionally been a ‘must’.” He further states that projects undertaken by reputed and credible developers in the top eight Indian cities will remain more or less unaffected.

This is because buyers who invest in such projects take the home loan route, and all transactions are carried out through legal channels. Hence, the primary market is likely to remain relatively untouched by the radical step. However, home buyers can look forward to better pricing in the secondary or resale market.

Home loan rates will soften
If you have been putting off buying your dream home because you’re not ready for the high EMIs, you can expect to have more breathing room now. This is because lending rates are likely to come down further. Due to demonetisation, a large amount of cash in circulation will be brought within the purview of the formal banking system through low-cost current account and saving account deposits.Since this will reduce the dependence of banks on higher cost borrowings, banks are likely to slash the marginal cost of funds based lending rate (MCLR). This will accelerate the fall in home loan interest rates, since CASA ratio is used in computing MCLR.

Fixed deposit rates have dropped across banks
Budget-friendly alternative
Better than renting
Grey market interest rates down to 5%

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