India went to sleep on Tuesday, Nov 8th, grappling with the news of demonetization of 500 and 1000 rupees notes. And woke up to the possibility of Donald Trump winning the US elections and becoming the 45th president of the US. Both these developments left the Indian stock market in turmoil with the Sensex opening 800 points lower and closing 338 points lower. Real estate stocks took a beating, driven largely by the impact of demonetization on the sector.
But is there a need to hit the panic button, if you are looking to buy a home? The answer is a resounding NO!
Here’s why.
Cash transactions have been an integral part of the Indian real estate industry. Market rates across cities in India are usually higher than government prescribed rates. Cash transactions have contributed in large parts, by helping hide the real extent of transactions. This has hurt the interest of genuine homebuyers and honest taxpayers.
Demonetizing: Positive news for residential real estate
There is no denying that the past few quarters have been difficult for the real estate industry. Sluggish economic conditions, as well as unrealistic real estate prices have created a huge pile of inventory and slowdown in the market. So far, real estate developers have held prices despite depressed demand for property. In the short term, demonetization of 500 and 1000 rupee notes will add to the woes of the industry, as cash transactions will be sucked out of the economy. Speculative buying will take a further hit leading to increased build-up in inventory and pressure on builders to relax prices.
Demonetization: A boon or bane?
The accompanying deflationary impact will serve the genuine homebuyer well in the form of affordable homes in the mid to long term. There will be a tipping point where prices of homes will have to correct, if they haven’t already, in line with market demand.
The Real Estate Regulatory Authority (RERA) Bill was a direct effort by the government to empower the homebuyer and bring transparency to the sector. Demonetization of 500 and 1000 rupee notes is an attempt to curb black money in the overall economy. But it will have a huge collateral benefit in terms of rationalizing real estate prices. If you have been paying your taxes and are looking to buy a home, go out and rejoice. This could be your Christmas gift in advance.