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Demonetization Impact on Real Estate

By Sarveshaa SB, Managing Director, Bhadra Landmarks

Government’s demonetization move has spurred a debate in the public domain on its impact to real estate, implying measure slowdown in the sector. However, the reforms indicate that Indian real estate business to gain significantly. Here are our answers on how the real estate sector will fare.

Immediate impact on real estate in Bangalore

We are witnessing the passage of Goods and Services Tax (GST) Act, the Real Estate Regulation and Development Act, 2016 (RERA) and the recent demonetization of high-value currency notes of Rs. 500 and Rs. 1000. These are significant reforms impacting every sector of the economy. Bhadra Landmarks supports these reforms as they would yield in substantial benefits to consumers and the industry. The transaction channels in the economy are in correction mode and the initial impact will take two-quarters to stabilize. Bengaluru has always been an end user or resident-driven market who fund their purchases through Home Loans. Aggressive lending is expected at lower rates, as the liquidity improves in banks. With lower interest rates, investing in real estate is very lucrative to buyers in the post-reform period.  

Real estate property valuation expectation

There is little scope for a decrease in the property prices unless there is a drop-in input costs. However, the customers will benefit because of expected lower interest rates. The property valuation in the real estate industry is largely dependent on infrastructure development and market demand. With the increase in revenue to the government, owing to rise in demand, a major push in infrastructure projects is expected to yield higher property valuations. Bhadra, as a leading real estate builder in Bangalore firmly believe that these positive reforms will lead to demand revival, as owning a property will be more affordable.

Markets Impacted

Markets formed by organized and credible developers in major metros will remain unaffected as home buyers fund their purchase with home loans. These transactions have always been done through legal channels, never involving any kind of cash transactions. Additionally, implementation of RERA will bring more transparency in real estate transactions and make it easy to access fund from banks. The impact is to the unorganized sector, as cash has played a role even in their primary residential sales. But such phenomenon should be a short run and with correction in transaction channels, the overall sector will overcome the turmoil.

Advantage to Landowners

The improved level of transparency in property related deals would be beneficial to all parties involved in the transactions. Apart from this, honest landowners selling their lands will benefit with the improved guideline value of the land.

Advantage to Re-seller

Resale market involving cash transactions are impacted with the demonetization.  An initial slump for a short period in demand is expected, but overall economy growth will help the investor to gain greater returns on their investments.

Future of Real Estate investment in Bangalore

In the end user or resident-driven market, wherein buyers are dependent on home loans to fund their purchase, post-reform period will be a right time to invest in real estate. Financial Institutes/banks are expected to utilize the liquid funds at their and a decent credit will assist in obtaining loan funds with ease. With prices at optimistic level after a prolonged price correction period, this is a good opportunity to invest and achieve great returns in the time frame of 5 years. 

The impact in real estate sector is in line with the current economic conditions of the market. The momentary impact for us, being in the organized real estate will be compensated with a spur in demand as the market stabilizes. In the long run, these structural reforms will lead us to a sector that is more attuned to compliance of international standards. 

Share and Educate

As a responsible citizen please forward this message to educate and inform the reality of Real Estate in India. Housing is a major economic activity contributing in large to GDP. Restrain from sharing unfounded opinions in public domain.