Demonetisation will Help Things Look Up in Real Estate Sector

The cascading effect of demonetisation in the real estate sector, which became apparent through a ‘correction in pricing’ resorted to in the sector, as claimed by some in articles published in the media, is far-fetched. We, the builders, have always been catering to the primary market which comprises clients who avail of home loans. Now, in the aftermath of demonetisation, banks are again going to be flushed with liquidity of an estimated Rs.15 lakh crore which, in turn, will force them to resort to aggressive lending.
But to do that, banks will have to lower interest rates. Another aspect of the demonetisation of currency is that it will remove surplus liquidity from the market which will result in low inflation. We expect that the RBI would definitely, in the coming months, reduce the repo rates by at least 2 per cent so that the home loan lending rate would come down to at least 7 per cent. With the home loan rates coming down to such levels by next year or so, the atmosphere will become more like in the West where home loans are available at 5 per cent and below. But unlike in the Western countries, India experiences a shortage of housing facilities and hence, there is a huge domestic demand for real estate.
This essentially means that with a lower home loan interest regime in place, a larger pool of home buyers would avail of loans. This could be made possible in the next three to six months. The housing industry will start to grow at a rapid pace while complying with transparency and fair practices laid down by RERA.
I would request the prospective home buyers to understand the long-term effect and benefit of this great move and not be misled into believing that property prices will fall.
Currently, the real estate market in Kerala is at its best possible price point with no further margin left for the developers to reduce prices. Now it is the responsibility of financial institutions to enable home buying during such an optimum scenario.
In Kerala the same trend will be there in land deals also as many land deals involve huge amount of cash. This will be good for developers as land will become cheaper.

 

(The author is MD, Asset Homes and Executive Committee Member, CREDAI Kochi)