7 things about Demonetization & Real Estate no one told you till now!

7 FAQs on Demonetization & its impact on Home Buying

Phone: (STD) 3333 7777Email: [email protected]

Over the past few days, a lot of property seekers have written to us with a range of questions all centering around the impact of currency ban on real estate.

We realized a lot of other people whom we know/might not know will have similar questions. This document is a compilation of all such questions & our answers to those.

We sincerely hope you find this to be of good information & value.

What is this about?

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Warren Buffett once said as an investor it is wise to be

“Fearful when others are greedy and greedy when others are

fearful.”

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Your Cheat-Sheet to understand impact of demonetization on Home Buying

Primary (New residential properties)

Ready to move in/Close to completion

Prices will be stable. But builders are likely to reduce prices for serious buyers during negotiations

Prices will go up as demand goes up due to reduced home loan rates, market sentiment improving

Under Construction/New Launches

Construction delays expected. New launches will be postponed

RERA & GST will drive cost of construction up putting an upward pressure on prices

Short term forecast (next 6 months)

Medium term forecast (6 - 18 months)

Great choice if u buy now!Neutral

Wait-n-Watch

Secondary (Resale properties)

Across all price brackets (Affordable to Super Luxury)

Some great short term price bargains might come up as a result of distress sale.

With fresh cash entering circulation, resale demand will pick up & prices would be marginally lower than prices before demonetization

LandMetros Marginal impact on prices as market prices are close to guideline

value. Sellers will hold off selling till another 18 months

Tier II/III Considerable price drop expected. But wait-n-watch will be a good approach here.

Phone: (STD) 3333 7777 Email: [email protected]

Frequently Asked Questions

1) Will home prices come down as a result of demonetization? 2) What is likely to be the impact of demonetization on real

estate?a) Opportunity in new residential propertiesb) Opportunity in resale properties & land

3) Will builders reduce the price of their properties?4) If land prices are expected to come down, won't that bring

down property prices?5) So, is now a good time to buy a property? 6) What does the next 6 – 18 months hold for a property

buyer?7) Can I wait till another 6 months & buy a property after

that? 5

1) I have been hearing that real estate prices will fall due to demonetization. Is that true? Will home prices come down?

• NO because the new property market which is driven by home loans usually has minimal cash component in its transactions. Chances of prices coming down in the new property market as a result of demonetization is very low.

• Moreover, property prices have grown by just 3 - 4% (Y o Y) in most cities in the last 4 years - much lesser than the rate of inflation (6% +) & are closer to circle rates in most metros. Is there scope for further drop? Very unlikely – More on that here >>

• YES because resale & land transactions have always had cash as a major component in their transactions and are likely to see a price correction. These segments will see some distress sale happening in short & medium term. Luxury properties are likely to see a higher price correction in the short term

NO & YES!


2) What is going to be the impact of demonetization on real estate?

• Technically, demonetization is likely to have minimal impact on the new property market. Resale & land property markets are the ones that will be affected

• But because a lot of news articles do not distinguish these 3 segments while predicting impact, a negative sentiment has overtaken the market as a whole.

• Overall real estate transactions will be lower due to negative market sentiment for the next 3 - 6 months.

Negative sentiment - That's where the opportunity lies.Read on..

Real Estate

New Properties (Primary)

Resale Properties (Secondary) Land

• New residential properties will see lower demand due to negative market sentiment & perceived uncertainty

• Builders will face a cash crunch due to sudden drop in sales

• To attract buyers & maintain sales volume, builders are expected to introduce attractive offers/freebies & other benefits like never before

• Builders are NOT likely to reduce prices because of reasons explained in slide 9

• But they will be willing to negotiate on prices with serious buyers across the table & offer considerable value for the same price (in form of modular kitchen, free car park etc.).

• If you are salaried/self employed and looking to buy your first home, next 6 months is a wonderful opportunity to save big.

Your bargaining power with the builder has just gone up a few notches.

2.a) Opportunity in the new property segment


• Resale & Land segment will see a direct impact from demonetization since cash component plays a big role in these transactions.

• Unaccounted cash dominates in resale & this is what most articles refer to when they talk about demonetization impacting real estate

• Demonetization has sucked out most of the unaccounted cash from the system. Affluent buyers who could pay cash & buy are out of the market. Temporarily!

• This leaves just the end users with sufficient loan eligibilities in the market. Lower demand would mean pressure on sellers to reduce prices

• Sellers with immediate need of money will go for a distress sale & be ready to sell off at a lower price.

If you get hold of such a deal in the next 6 months, you will reap the rewards in the long term

2.b) Opportunity in resale property & land


3) Will builders reduce the price of their properties?

Very unlikely. Why?

• In last 4 years, property prices have grown at a lesser rate than inflation - which means properties are already being sold now at 2012 prices (price adjusted for inflation)

• Most builders have acquired lands at higher costs, input costs of construction have gone up in the last few years

• With RERA around the corner, builders will be required to comply & cost of compliance will squeeze margins further

• An explicit price drop will also impact builder’s credibility with past & existing customers & most builders would not run that risk

• Instead, builders will be willing to negotiate on prices with serious buyers across the table & offer considerable freebies in form of modular kitchen, free car park etc. till the market sentiment turns positive


4) If land prices are expected to come down, won't that bring down property prices?

• Land acquisitions/transactions where cash plays a major role will witness higher impact

• But as we explained, not everyone might be willing to sell at lesser price. Only distress transactions will happen

• It will take at least 3 - 5 years for these to enter the market as fresh projects. So no short/medium term impact expected in the residential market.

• Anyways, given the liquidity crunch, no. of new project launches are likely to come down over the next 12 months


5) So, is now a good time to buy a property?

If you are looking to buy your first home, a big resounding YES! Why?

• Reason 1: Builders would be in need of cash liquidity to fund construction & pay off wages. They would be willing to negotiate & offer the best possible price across the table to serious buyers.

• Reason 2: Your options just got wider. Resale properties that were out of your budget reach earlier will now become affordable due to distress sale.

• Reason 3: 90% first time home buyers fund their property purchase through home loans. With home loan rates expected to come down very soon, EMIs will go down considerably making homes cheaper or can get you a bigger home @ same price.

It’s now up to smart buyers to make use of the opportunity


6) What does the next 6 – 18 months hold for a property buyer?

• Though the last 3 years has always been described as a buyer’s market, the power a buyer could wield has just gone up a few notches. This is expected to be the case for at least the next 6 months

• After this phase, with loans getting cheaper, new currency coming into the system & sentiment turning positive, demand is expected to go up.

• Since new launches are also likely to slow down, demand for ready to move in homes already in the market will intensify. With more buyers entering at this point, prices in the primary market are most likely to go up.


7) Can I wait till another 6 months & buy a property after that?

• Of course you can. Buying a Property is a big decision & you should do it only when you think is the right time for you.

• Only downside being after 6 months, you will be competing with more buyers & you might have to buy the same property at a slightly higher price

• We would suggest you to however start your search process now so you will have enough time to understand the market scenario & assess your options

• Also, though you don't plan to buy a property right away, getting in touch with sellers early in your search phase will indicate you are serious & might fetch you a great offer not available else where.

• Feel free to avail professional help if necessary. It would be worth it.


4 things you could do to take advantage now

1. Get to know your affordability - Get a pre-approved home loan & arrange funds for the 20% that has to come from your pockets

2. Start searching for properties with a trusted advisor & have a range of suitable options ready

3. Start getting in touch with sellers, visit the projects physically & show them you are serious

4. Brush up on your negotiation skills. You will save a few Lacs!

We at Indiaproperty.com are always there by your side to help you with any thing to do with properties.


Thank You for Reading!

If you have specific questions/feedback to offer, write to us at [email protected]

or call us on (STD) 3333 7777 & discuss your concerns with our experts.

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