Could demonetization actually boost the real estate sector?

The Indian Government has undertaken a bold move by demonetizing INR 500 and INR 1, 000 currencies. In spite of the overwhelming cash crunch faced by the common man in recent times, there are possibilities of this benefiting the real estate sector. Developers across the country are hopeful of a correction in the home loan interest rates.

Instead of a correction in real estate prices, developers are hoping for lower interest rates in the long term. This would make the home buying process more accessible. Customers will be able to take bigger loan amounts since repayment abilities would automatically increase. This may give a fillip to the sector. Demonetization may lead to home loan rates falling below 7% within the next six months to a year.

Demonetization may spur the RBI to lower repo rates by 2% and banks will already possess excess liquidity to the tune of INR 15 lakh crore by the next few months. Getting a home loan may become a lot easier. In the West for example, home loan rates are already below 5% in most cases. India already faces a housing shortage and with lower interest rates, more buyers would start applying for loans to buy their own properties.

This may spark rapid industry growth. A price correction may not happen since most transactions anyway happen in white money. This has been corroborated by India’s leading real estate company\’s chairman. He believes that land is in short supply in the country and hence land and property prices will not go down. Profits in the real estate sector are quite low already and hence there will be no corrections. He also believes that most big real estate companies deal with clients who do not pay through black money.

As a result, business will not really be affected. In fact, more customers will be able to take home loans once interest rates come down. There may be a few price corrections in case of resale or redevelopment properties where cash is majorly used. However, the industry remains hopeful of demonetization actually spurring future growth and expanding the customer base.