Effect of demonetisation

Lots of our customers and our connects asking us about the current impact on demonetisation. There are lots of uncertainty in the mind of home buyers whether the prices are going to fall in Mumbai Real estate market. We feel that the answer to this question cannot be straight forward and needs to be analysed properly.  Since we operate in Mumbai Residential market, we would like to restrict our discussion to Mumbai Residential market only. For putting the thing in perspective lets divide things in following manner -

1.       What has driven prices in Mumbai Real Estate in past? In any market prices for any product is driven by its demand and supply. Mumbai being the financial hub of India gets lots of inflows of funds from both local as well as NRI market. It is the real estate demand in Mumbai which have driven prices. This demand have created trust in the mind of buyer and investor for investing or buying real estate in Mumbai.

2.       Effect of demonetisation - There are certain markets in India where cash transaction are prevalent. Market like these will see transaction coming to a standstill. As the supplies will outpace demand in these market which may result in fall in price. Mumbai real estate primary market transaction are by and large dependent on cheque payment. Hence demonetisation should not result in such demand and supply mismatch in Mumbai market. Except for some distress transaction, prices on account demonetisation seems to be unaffected over 6 months.

3.       Effect of demonetisation on bank rates – Due to lots of cash deposits into bank, bank deposit rates and eventually bank loan rates are expected to come down. A cut of 100-150 bps in loan rate is expected in market. Any rate cut historically give lots of push demand for real estate. It will be however interesting to see as how soon this rate cut is offered to customer.

4.       Market Sentiments – Sentiments of market is currently down overall. Not just real estate but industry across are seeing a negative sentiment. There is one segment of real estate buyers  who will be deciding to wait and watch the situation and then transact. Other set of customers will be finding the market to be more interesting for looking out for property matching their requirement. We feel this negative sentiments in market across should improve drastically  in coming 2-3 months times which may result in loss of opportunity to prospective buyers which they can scout for currently.

5.       Overall effect – Overall effect of demonetisation in India should be positive. This will bring in more demand in market from people of all class of society. Objective of the government is definitely to make more transparency in the market which will result in higher demands.

Last but not the least, RERA will be giving lots of support to customers for safeguarding their interest. Think twice whether this market is market to stay away or too tap on the current opportunity.

Regards

Navin Thirani, ACA, FRM

Director – Manisha LifeSpaces