DEMONETIZATION BRINGS WITH IT THE POSITIVE HOPES OF GETTING CHEAPER HOME LOANS

Prime Minister, Shri Narendra Modi’s sudden decision of scraping off the Rs 500 and Rs 1000 currency notes from November 8th onwards has come as a bold and courageous step that has received a mixed response. Taking the entire nation by shock, these denominations are now treated as illegal tenders and have created havoc in the Indian economy. The main objective of this daring move is to unearth the higher currency denominations and keep it out of the system, and to put a control on black money hording and ongoing corruption. Initially not liked by all, but this wise step will have far-reaching and positive effects on the economy as a whole.

Well-received by the Indian real estate sector, the tremendous step is going to have both positive and negative consequences on the property market in India and definitely, for good. Taken with a prime motive of curbing black money, undermining terror financing and to end corruption, this initiative will help in making the entire system more transparent and reliable. Besides making the Indian realty market an attractive industry on the global level, it will also raise hope of getting cheaper home loans.

In the National Capital Region (NCR) over 35-40 percent of transactions related to sale of pre-owned houses were being done in black, with only circle rates being reported in white. But, with the currency ban, this has come to an end. Even the sale of flats which were being developed by the builders by taking over the properties from the existing independent owners and transforming them into new, has come to a standstill. However, even then the realty industry has not given up. They are quiet hopeful that once the conditions become normal and the stability returns, the amount of home loans will increase and gradually will hit fortunes. With the stabilization of this demonetization drive, say in a time period of three to six months, the banks will gear up again and will extend more home loans, since the rates have also gone down by 25%. The drive will boost the sales, as the banks will be eager to lend more and that too at friendly rate of interests supported by multiple payment plans.

Another advantage that this currency ban brings with it is that the banks will have more deposits with them and will have more flexibility in disbursing the loans. It will flood the banking system with funds driving down the interest rate on loans. This will benefit the real estate industry in a way that they will get an opportunity to dispose off their stockpile. The sale of the properties especially the residential properties will increase considerably as the banks will be willing to lend to actual homebuyers. Due to the increase in deposits, the banks will be lending the funds at better rate of interests. So, in near future, people would prefer purchasing property, instead of stashing their money in fixed deposits, or bonds. The apartments would come within the reach of buyers due to lower monthly installments as a result of lower interest rates. The bright and sunny days will be back again, both for the investors and lending institutions, and even for the developers as they would offload their unsold inventory. Investors will resort to renting out options also as it will fetch them great returns as compared to any other investment option complimented by the advantaged of owing an asset that will appreciate in the long run. It will be a win-win situation for all and would see a revival of the otherwise slow-moving residential real estate which will get a massive boost with the property becoming an attractive investment opportunity for everyone.

The demonetization drive will have its adverse effects on the unorganized builders segment and the secondary market which in realty industry parlance is referred to the re-sale of property both in terms of land and pre-owned houses. In both these segments, a ratio of 60:40- legal to black money was not considered to be anything unusual. The secondary market would definitely feel the pinch as majority of the transactions related to land purchase were being done in hard cash and at low circle rates. And thus the impact for once is going to be strong. They are expected to remain silent and subdued for a few months or until December, after which it might see a revival due to the drop in property prices and home loan rates.

Since the RBI is slated to release the monetary policy statement on 7th December, the loan rates are expected to drop down post the release. It shall be evident from a cut from 15 basis points (BPS) to 25 BPS and a reduction in the loan rates is also expected in the coming days.

Even though, there was an upward growth in the sales of properties, during the festival days, with cracking of best deals, the entire situation has taken a back seat post demonetization and the number of transactions taking place has gone down remarkably. The buyers are now in a wait for the prices to reduce and the interest rates to go down in case of home loans.

The entire currency drive has more severely affected the cash-savvy market in Mumbai and North-India which thought that dealing in cash was the safest option. Regions like Chennai and Hyderabad remained unaffected as they did not rely much on high cash transactions. Deals based on home loans remain unaffected whereas those which had 30 to 40 percent cash involved, got cancelled.

Thus, it is anticipated that the land prices will go down rationally and appreciably. Real estate deals depending on cash transactions are dead for the time being but sales of those properties where the builders operated without cash will increase notably. Interest rates will reduce for all types of loans be it home loan, car or personal loan which will further boost the customer spends. Overall, the country’s GDP will slowly and steadily increase as the black money is considerably destroyed out of the system and all the deals and transactions get noted in the mainstream economy.

Such audacious anti-black wealth moves will surely help paving the way for ‘whiter' way of doing business!