Affordable residential property buyers have no reason to worry.
Word spreads like wild fire; and even unto the most diligent readers and followers of news and analysis, word of mouth is the most treacherous in influencing opinion. Much has been analysed and even more has been said about the impact of demonetization on capital-intensive sectors. Real estate, an overall contributor of 9 percent to India’s GDP, and one of the most capital-intensive sectors in India, has been the first point of apprehension for investors and consumers across the world, when demonetization was implemented last week. Long queues at ATMs and longer discussions with bank executives are still a veritable feature everywhere in India.
However, there seems to be some respite for residential property buyers. Our analysis gives you a fresh, comprehensible perspective.
An important objective of demonetization was to reduce the circulation and hoarding of black money. This does not seem the problem with mid-range, affordable residential properties in metro cities. Residential properties that deliver value for money, and those that have always conducted integral and accountable financial transactions in sales, would not be affected. Values of high-end (market price of INR 2 crore, and above) residential properties in non-metro cities and towns would be affected because of large cash transactions. Sufficing to say that as long as transactions are done in transparently, property values would not be affected, and primary sales of such residential properties will definitely not be upset.
Transparent, accountable transactions will be the underlying justification for FDI inflows. Real estate would be the next big corporate investment avenue, collecting popular goodwill internationally. Such integrity and transparency in operations has been an attractive proposition for private equity funds. In 2016, out of 40 percent that is funded by private equity, 48 percent was invested in residential properties.
Notwithstanding the above scenario, demonetization has led to huge cash deposits by individuals and business owners, thereby increasing inflow of funds into banks, alleviating banks from a liquidity crunch. Home loan rates are the next in line to be influenced, with such great crests in liquidity. Transparency in accounting, increased inflow of cash into bank accounts, and the ongoing demand for residential investments will influence home loan rates, making them friendlier to buyers. Moreover, though approvals for newer projects will be delayed, existing projects that have received approvals will be able to continue smoothly.
The scenario indicates enough evidence of real estate becoming the future of investments and potential money-parking chests that will reap increasing returns for future generations.