Will Property Prices Fall post Demonetization?

Even with the phenomenal growth of the residential real estate sector and significant inventory, owning a home still remains a distant dream for many. One of the primary reasons why people often postpone their decision is the high EMIs. However, things can change post demonetization, as it is expected to have a cooling effect, which would bring down prices in certain pockets of the residential market.

Housing in the coming months

Any significant fall in property prices is likely to occur in the secondary market, as this segment usually involves a significant percentage of cash transactions. With demonetization, the secondary market is already experiencing a slump, which might force sellers to reduce prices in the coming months. The same dynamics may be evident in the luxury housing segment as well, since this segment also involves large cash transactions. Primary markets would remain largely unaffected, since here most transactions are entered through the banking system, via checks or online payment modes.

Home loan rates will come down

Demonetization has made large amounts of cash available with banks, which means that they will not have to borrow funds from the Central Bank at high interest rates. With this advantageous position, banks are likely to reduce the marginal cost of funds based lending rate (MCLR). What will happen next is a reduction in home loan interest rates, as CASA ratio is utilized in the computation of MCLR. Demonetization is also expected to have a deflationary impact, as purchases involving high value items will take a hit. Eventually, GDP growth will slow down, which would probably result in a softening of inflation. This will provide RBI the right reasons to introduce interest rate cuts and give more freedom to banks to reduce their lending rates.

RERA Impact

Many states are expected to enforce the Real Estate Regulatory Act (RERA) in 2017, which will bring increased transparency and ensure improved services from developers. Homebuyers can expect timely completion and better build quality, which would significantlyreduce their stress and anxiety related to their most valued investment in life.

Affordable homes – A good alternative

There are many people who resent paying rent and yet don’t want to buy a home due to high EMIs. Demonetization has further complicated their decision making. Experts opine that such people should consider affordable housing, as EMIs are quite manageable and resale is possible without much effort. Moreover, developers have increased their focus on the affording housing segment, which means that homebuyers can choose from a wide variety of options. A report published by Cushman & Wakefield shows that total launches in this segment during the first half of 2016 has almost doubled, as compared to last year’s figures for the same period. Further, many of these projects are being launched as integrated townships, thereby ensuring optimum value for homebuyers. Affordable housing could be a good option for people who want to wait and watch till the time the uncertainly related to demonetization clears out.