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Indian Real Estate – Beyond the rules

Property has always been considered as the best way to multiply your money. With the news of demonetization, views and arguments will fly several ways over the next few months. It has been shared that the property sales will freeze for a while be it land, primary apartments or secondary sales. With the black money component being pushed out, there is very little hope of prices climbing up soon. Yes, there are chances that the desperation might creep in and with it, prices will drop. The luxury and the ultra-luxury properties which play with price tags of crores in areas like Mumbai, Delhi NCR, etc. might see a big blow. On the other hand the budget and affordable homes priced at 50 lakhs will only see new and more buyers with every correction, making it actually affordable for all. Indian real estate has always been demanding for ‘right-priced’ homes and the good news is that once the black money is drawn out of the system, the right-priced homes will be built for those who want to live in them.

There have been so many discussions on the news that there will be a correction in pricing of real estate by various opinion makers. As an industry body representing an organised real estate, CREDAI has shared that the industry has always been catering to the primary market, which, comprises of end users who aggressively avail home loans. Moreover, with this step of demonetization, banks are again going to be flushed with liquidity of approximately 15 lakh crores and will be compelled to lend aggressively. To do that, they will have to lower interest rates. Demonetizing currency has also removed surplus liquidity from the market and this in turn will result in lower inflation.

CREDAI further shared that they expect that the RBI would definitely, in the coming months reduce the REPO rates by at least 2% so that a home loan would come down to at least 7%. With the home loan rates coming down to such levels of sub 7% in the next year or so, the atmosphere will become more like the west where home loans are available at 5% and below. Unlike the western countries, India has a documented shortage of housing and homes and an aggressive domestic demand for real estate. This essentially means that in the presence of a lower home loan interest regime, a larger pool of home buyers would avail loans to buy the home they always wanted.  This could be made possible in as soon as the next six to twelve months. The housing industry will start to grow at a rapid pace while concurrently being in compliance with transparency and fair practices like RERA. Real Estate Consultant have appealed to potential home buyers to understand the long term effect and benefit of this great move and not be misled into believing that property prices will fall. Currently the real estate market is at its best possible price point with no further margin with the developers to reduce prices. Now it is the responsibility of financial institutions to enable home buying during such an optimum scenario.

A lot of industry consultants believe that the capital chasing land will come down, but they don’t see an immediate fall in land prices. At the same time, a lot of transactions will certainly freeze. The overall decline in land prices will have a cascading effect. Anuj Puri, Chairman & Country Head, JLL India shared with media that this move will see inflow of foreign capital in the sector. He adds, “The banning of higher currency notes is a major move which will help curb unaccounted-for cash in the real estate sector. We have just witnessed a tremendous step towards increased transparency in the Indian real estate industry. The effects will be far-reaching and immediate, and shake up the sector in no uncertain. Stricter measures against black money have for long been required to help bring about greater transparency, give the Indian real estate sector more credibility and make it more attractive for foreign investors. Black money deals are more common on the unorganized market, but this practice has, in fact, been on the decrease with greater awareness on the part of buyers. Before too long, the caricatured version of black money driving Indian real estate is no longer applicable.”

Everyone in the industry has a short-term and long-term impact version on the impact of demonetization on Real Estate. We should be seeing corrections in the form of governance and transparency coming into the sector. The fact remains that the Indian Real Estate is a very typical market and works on unwritten rules. It has been rightly said by someone, ‘Indian Real Estate is like the film industry, there is no logic here!’

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