Has Demonetization Affected the Real Estate Industry?

22 Jan 2018

Since November 6, 2016, demonetization has dominated every conversation with debates flaring up incessantly on its effects on the various sectors. The realty industry hasn’t been left out of the debate either and due to fears of what demonetization could mean to ready-to-move-in homes, many buyers have been holding off from investing. Of course part of the reason is due to paucity of funds with many predicting that this could lead to further reduction in prices.

With the realty sector contributing about 5-6% to the country’s GDP, misinformation on this can lead to potential chaos. Almost a year has passed, but rumours are still flying around about the effect demonetization has had on realty sector. Of course, the naysayers are of the opinion that paucity of black money has lead to lower sales rates, but builders obviously are of the opinion that the expected softening of interest rates, as well as the thin margins in the industry, haven’t resulted in price cuts or any negative impacts on the realty industry. Real estate is divided into luxury, mid- and low-end sectors, with their having been no direct impacts on the mid-market and affordable housing sectors.

After the initial few months when homebuyers went into the ‘wait and watch’ mode (similar to slow-downs witnessed in other sectors too), sales are on an upward swing again on the back of numerous positive factors including a growing economy, low home loan interest rates, and deals and discounts by developers. Also, the primary market for ready-to-move-in homes are funded by banks as home loans, so effectively, this sector has been unaffected by the currency ban; just as precautionary measures, buyers delayed investments due to uncertainties on market trends.

However, buyers should understand that this is the best time to buy homes and negotiate and strike deals as the climate is just right. Developers are also interested in selling volumes, so negotiations aren’t so difficult to swallow.

Aside from this, credible developers with transparent business practices and their reputations at stake had their sale volumes unaffected by demonetization. Such Grade A developers are still expanding and launching new projects on a regular basis.

And as far as secondary markets go, landlords are holding on to their properties and not selling now till they are sure that markets have stabilized. The popular hypothesis touted by many about tumbling realty costs has fizzled out obviously, but many landlords are still preferring to hold on to their properties till they are happy with the going rates. The realty industry did not tumble because most Indian buyers are end-users and not investors who could sell-off and get out of the market en masse.

In conclusion, though the market was slightly affected post-demonetization, the sooner the realty industry stabilizes, the better it will be for all stakeholders.