Demonetization Impact On Real Estate

Due to demonetization in india on Nov 8th 2016 hits a huge impact on every sector and majorly effects on real estate sector. This move by our PM Modi government could bring a big impact on the country. The drive against black money and corruption may well be a masterstroke to everyone and everyone knows that a lot of black money goes into the real estate sector. So , let us consider some of the impacts that strike Indian real estate.

Will buying a house become affordable?

The government’s decision could dry up black money inflow into the real estate market. This would get rid of cash transactions that are unaccounted for real estate sales. This sector deals with significant amount of cash on a daily basis. So, the sudden withdrawal of higher-denomination notes may have a short-term impact on developers. Property prices could dip in the near future as demand falls. Most buyers will avoid paying in cash at least for the next two months. The demonetization move to curb illegal money could get support from implementation of the Real Estate Regulation Act. That means the Indian property market could witness a significant fall in price. This could make it easier for regular people to buy a house.

Impact on real estate:

The decision will have a huge impact on real estate as the sector deals in large amount of cash. Cash transactions allow developers to save on tax. Buyers get to save on stamp duty. People invest in real estate to exhaust their unaccounted cash. Now, with fewer potential buyers in the property market, the sector could see a short-term slump. Reputed builders and the primary property market may not feel a major pinch. That is because their transactions go through banks. But in the resale property market, small and unorganized builders may see a major impact. That is because their transactions involve higher reserves of cash.

Impact on home loan interest rates:

As more legal cash enters the banking system, the volume of bank deposits will increase. Higher deposits would result in more lending by banks. As lending increases, the interest rate charged may come down. A cut in the repo rate by the Reserve Bank of India last month already brought down the home loan interest rate. Now, with the ban on higher-denomination notes, loans are likely to become cheaper still.