“Home, the spot of earth supremely blest,
A dearer, sweeter spot than all the rest.”
We all want to build a home that is a true reflection of us. Moreover, it always is a great idea to in the form of an asset and what better than in real estate? Nonetheless, does the current economy make it suitable for such an investment? We find this out here.
The recent verdict of demonetization has reasonably shaken the real estate market. While there are slender chances of the primary market getting impacted; secondary market (resale properties) and high-end projects (luxury homes) will see major reductions in their value. Where high cash transactions were most inevitable, major clinch is definite to occur. This possibly can affect the sale of flats and apartments in Mumbai.
Top-notch builders of high-end properties who are most accountable for creating profits using unethical tactics are most likely to bring their prices down by as much as 25-30% in order to delegate properties. Buyers obviously will now have more property options to select from which were at one point in time out of their reach. Whilst in the secondary market, value reduction will mostly be seen in tier 2 and tier 3 cities, as opinionated by the CEO of JLL India. Mumbai being a tier-1 city will not see much effect in this aspect. On the other hand, the primary real estate which mostly has credible builders and buyers who book through legal procedures will see almost no variations.
How can interest rates for home loans change? Here are two theories that can be potentially discussed.
First theory says that with demonetization, there has been a sudden cosmic cash-inflow into banks which has made them much richer. Owing to a larger liquidity, banks are in a better spot to be able to manage their demand to supply ratio of lending money thereby catering to the needs of more people. This means banks can offer loans at decreased interest rates implying that your home loan will have much lesser EMI. Obviously, this should increase buyer numbers considerably escorting larger sale in real estate.
Now as per the second theory, what we need to understand is how demonetization is to affect our country’s growth rate? This act has shaken our cash economy significantly. Besides the targeted black money, there is some percentage of credible white money which has been forced to stash. With demonetization, 1% decrease in GDP can be observed which is massive when compared to our vast population. With growth rate reducing, the job sector will be affected that could lead to insecurities in the minds of the masses. In such scenario, there might not be as many buyers wanting to invest in real estate.
However, the theory of probability says that if prices have gone down considerably, it is 60% probable that these rates will stay almost constant in the near future. Waiting a short period to see how our economy shapes will be an ideal approach to real estate investment.
This new era of ‘black-money-eradication’ is most likely to benefit buyers tremendously; however, it is more of a ‘wait and watch’ period. With already implemented demonetization and the Benami Transaction Act, further dwindling in real estate is possible which can lead to additional buyer benefits.