Win-win situation this of Demonetisation
Mar 04 2017 : The Times of India (Pune)
Vinit Deo
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Here's how demonetisation can have a long-term positive effect on the real estate sector
One of the objectives behind demonetisation was flushing out and curbing the black money. In the entire two month period of demonetisation, media was abuzz with stories that the real estate industry will crash as the 'social media economists' had made up their mind that the entire industry seems to run on cash! Also, last three months have not shown any signs of prices reducing leave aside crashing.Following are the reasons as to why it will, in fact, have a long term positive effect on the real estate sector.
1 BLACK MONEY & REAL ESTATE: BUSTING THE MYTH
In India virtually every industry has a component of cash transactions and real estate was no exception. It is obviously impossible to know the percentage of cash transactions in India as a whole, we can definitely do a quick comparative study across industries. Going by the ratio of cash transactions to banking transactions, there are many sectors other than real estate where 80-100 pc of the collections were and still are in cash. Some notable examples being: the entire retail industry right form grocery to fashion stores, hospitality and travel industry from the roadside eater to a fine dine restaurant or for that matter healthcare industry from individual doctors and hospitals to chemists et al. Does this mean that post-demonetisation, the demand and prices of all these sectors will crash?
2 PROPERTY, INVESTMENT BEYOND MONEY
Do you buy property saying I have Rs 50 lakh and want the cheapest apartment available?
One can understand if an investor is waiting for prices of gold or shares to reach a certain level in order to buy. However, the same principle cannot be used in buying an apartment. Property, unlike investments such as gold and shares, has other features such as brand of developer, location, floor, view, amenities and so on. If you take the risk of waiting, beyond a point, there is also a risk that the preferred apartment may not be available. Hence, after you are reasonably satisfied with the price that you are getting and it's broadly in line with the prices in area, one should not base on his decision on a speculation of fall in prices.
3 NINETY PC BUYING THROUGH HOME LOANS
Majority of buyers prefer home loans where their own contribution is just 10 to 20 pc of flat price. With more cash flow moving through home buyers' bank accounts, they will be eligible for higher amounts of loans on better terms.
4 FIRST HOME MARKET
Real estate is still largely bought by first home buyers or people upgrading to a bigger house, shifting from rental to own home. Home is their basic need and due to specific requirements like finding a home near children's school getting a location near their parents, identifying a locality with strong social infrastructure etc. they have to take a decision in time as supply of apartments meeting all their needs is always limited.
5 BOOST TO AFFORDABLE HOUSING
People working in un-organised sector like small traders, vegetable sellers, auto drivers, etc. will now be eligible to get home loans as they will start using banking channels. The affordable housing industry will get the biggest boost post demonetisation.
6 NEW EMPLOYMENT OPPORTUNITIES
Demonetisation will open up new job opportunities from high-end ones like software engineers to build, manage and maintain the systems for the new digital payment companies, banks etc to executive level like ATM and swipe machine setup and support, sales executives for banking and credit card companies.
7 DEVELOPERS ARE NOT STARTING NEW PROJECTS
When was the last time that you saw major full page advertisements spread across weeks in newspapers for launch of new projects? In fact, for the past six to twelve months, developers have been focusing on finishing off old projects instead of starting new ones. This will lead to price stabilization and in fact price rise in central suburbs where there is limited inventory.
8 LIMITED STOCK OF READY INVENTORY
If you are a buyer, who wants to purchase in the next three to six months, you can do your own basic research: On a weekend, drive around the locality where you wish to buy an apartment and find out how many ready near complete scheme are there which have a large number of apartments of your choice left?
You will be surprised with the lack of choice available.
9 ADDITIONAL TAX COLLECTION WILL FUND INFRASTRUCTURE
The increased tax collection due to demonetisation and drive against black money will provide funding to the government to invest in infrastructure and smart city projects which will start showing results in the next one to two years.
10 DEMONETISATION & REAL ESTATE REGULATION ACT (RERA)
Under RERA, the developers have to anyways deposit 70 per cent of amounts collected from customers in a separate account to be used for project costs. This will help bring further transparency rebuild confidence of buyers in the sector.
1 BLACK MONEY & REAL ESTATE: BUSTING THE MYTH
In India virtually every industry has a component of cash transactions and real estate was no exception. It is obviously impossible to know the percentage of cash transactions in India as a whole, we can definitely do a quick comparative study across industries. Going by the ratio of cash transactions to banking transactions, there are many sectors other than real estate where 80-100 pc of the collections were and still are in cash. Some notable examples being: the entire retail industry right form grocery to fashion stores, hospitality and travel industry from the roadside eater to a fine dine restaurant or for that matter healthcare industry from individual doctors and hospitals to chemists et al. Does this mean that post-demonetisation, the demand and prices of all these sectors will crash?
2 PROPERTY, INVESTMENT BEYOND MONEY
Do you buy property saying I have Rs 50 lakh and want the cheapest apartment available?
One can understand if an investor is waiting for prices of gold or shares to reach a certain level in order to buy. However, the same principle cannot be used in buying an apartment. Property, unlike investments such as gold and shares, has other features such as brand of developer, location, floor, view, amenities and so on. If you take the risk of waiting, beyond a point, there is also a risk that the preferred apartment may not be available. Hence, after you are reasonably satisfied with the price that you are getting and it's broadly in line with the prices in area, one should not base on his decision on a speculation of fall in prices.
3 NINETY PC BUYING THROUGH HOME LOANS
Majority of buyers prefer home loans where their own contribution is just 10 to 20 pc of flat price. With more cash flow moving through home buyers' bank accounts, they will be eligible for higher amounts of loans on better terms.
4 FIRST HOME MARKET
Real estate is still largely bought by first home buyers or people upgrading to a bigger house, shifting from rental to own home. Home is their basic need and due to specific requirements like finding a home near children's school getting a location near their parents, identifying a locality with strong social infrastructure etc. they have to take a decision in time as supply of apartments meeting all their needs is always limited.
5 BOOST TO AFFORDABLE HOUSING
People working in un-organised sector like small traders, vegetable sellers, auto drivers, etc. will now be eligible to get home loans as they will start using banking channels. The affordable housing industry will get the biggest boost post demonetisation.
6 NEW EMPLOYMENT OPPORTUNITIES
Demonetisation will open up new job opportunities from high-end ones like software engineers to build, manage and maintain the systems for the new digital payment companies, banks etc to executive level like ATM and swipe machine setup and support, sales executives for banking and credit card companies.
7 DEVELOPERS ARE NOT STARTING NEW PROJECTS
When was the last time that you saw major full page advertisements spread across weeks in newspapers for launch of new projects? In fact, for the past six to twelve months, developers have been focusing on finishing off old projects instead of starting new ones. This will lead to price stabilization and in fact price rise in central suburbs where there is limited inventory.
8 LIMITED STOCK OF READY INVENTORY
If you are a buyer, who wants to purchase in the next three to six months, you can do your own basic research: On a weekend, drive around the locality where you wish to buy an apartment and find out how many ready near complete scheme are there which have a large number of apartments of your choice left?
You will be surprised with the lack of choice available.
9 ADDITIONAL TAX COLLECTION WILL FUND INFRASTRUCTURE
The increased tax collection due to demonetisation and drive against black money will provide funding to the government to invest in infrastructure and smart city projects which will start showing results in the next one to two years.
10 DEMONETISATION & REAL ESTATE REGULATION ACT (RERA)
Under RERA, the developers have to anyways deposit 70 per cent of amounts collected from customers in a separate account to be used for project costs. This will help bring further transparency rebuild confidence of buyers in the sector.
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