Effect of demonetization on real estate market

Date of demonetization in India 08/11/2016

India's rank on ease of doing business improves after demonetisation, Rera and
GST

Demonetization means the withdrawal of a coin, note or precious metal from use
as legal tender

If has been used as a tool to stabilize a currency and fight inflation to facilitate
trade and access to markets and to push informal economic activity into more
transparency and away from black and Gray market

Demonetization was expected to impact primary market sales but had a larger
impact on secondary market transactions, luxury segment and land deals

Demonetization has greatly contributed in the standardization of the pricing in the
sector and insuring transparency,efficiency, promote growth of buyers
conference and boosting investments in the real estate industry

Demonetization affects small business which may lead to financial losses

The Indian economy is a cash driven economy, GDP growth rate 8.01% in 2015-
16 fell to 7.11% in 2016-17 after demonetization

The impact of demonetization on real estate is much higher as compared to any
other sectors as in the involvement of black money and cash transactions in this
sector is much more

Increasing income and lowering of prices encouraged to begin finalising deals
that were previously put on hold.

Investors and end-users who started coming back in the market, saw a gradual
decline in unsold inventories that had been chocking up liquidity for builders

To liquidate their holding and ensure financial stability, developers became
amenable to negotiating and offering attractive deals. They also tied up with
financial institutions to offer affordable loans and announced other Schemes to
help buyers to take decisions. This has, started paying off

New launches reduced markedly, owing to higher unsold inventory, this means
the developers were focusing their resources in disposing off the developed
projects

With scarcity of a cash, a large corpus of buyers went off the market and sellers
can do little but waits, resulted in price reduction thereby benefiting buyers

Real estate developers with transparent business practices have not been
affected by demonetization, and have instead witnessed sales growth.

The fact is, demonetization has already resulted in a major reduction of home
loan rate interest rates, and they are expected to reduce further

Industry innovation has been observed after demonetisation

Demonetization results in luxury property prices dipping by as much as 25-30%
as sellers struggle to offload properties to generate liquidity

Over the long term the Indian real estate sector will emerge stronger, healthier
and capable of long periods of sustained growth

Residential transactions initially fell due to demonetisation but are coming back,
with prices stable or slightly lower

Office demands remains strong

Due to demonetisation Gap between ready reckner price and market price
reduces, resale property value reduces

Due to demonetisation both commercial and residential markets could see
rentals growth by 10-20%

Affordable housing will remain largely unaffected due to non dependence on the
cash component

Due to demonetisation instances of investors investing in projects with black
money and raising prices to make increased profits comes to a rest, hence
market price will hopefully reflect the true price for real estate properties and not
an inflated price tag

Due to demonetisation NRI due to price corrected market may have kept the
property holding for a longer period

Compiled by

Avinash Kulkarni