The After-effects of Demonetization on the Real Estate Industry

The After-effects of Demonetization on the Real Estate Industry
Real Estate Industry Demonetization

There is no denying that demonetization dominated every conversation for a while and had become a setback for the real estate sector, slowing down sales to a large extent, creating uncertainties in the buyer’s minds.

While the purpose of the exercise was to clean up the system and create transparency, it ended up creating angst and a shortage of availability of cash, slowing down sales and the economy as a whole. Pre-demonetization, schemes like AMRUT, Smart Cities and Housing for all by 2020, created a boost in the realty sector. Coupled with higher disposable incomes and lower prices, the sale of residential properties was on the rise and the realty sector was looking up.

Post demonetization however created confusion in the buyer’s minds and saw a build-up of unsold inventory and a gradual decline in sales. This resulted in a loss of liquidity for builders to concentrate on expansion. To be able to forge ahead and solve the problem of mismatch between supply and demand, builders have become more amenable to negotiation and are offering attractive deals to overcome the cash crunch.

Hence, for those of you who have been sitting undecided on the fence till now, this is the right time to delve into the market and invest in ready-to-move-in homes. Builders are further tying up with finance houses to offer affordable home loans to boost sales. Both the buyers as well as the sellers stand to benefit from this move. Buyers get great deals while builders gain liquidity that ensures financial stability.

Demonetization hit every sector of business spreading uncertainty and confusion in its path resulting in a general economic slowdown, which was expected. In the real estate sector which contributes about 5-6% to the country’s GDP, any changes were expected to create chaos. The scarcity of cash hit the secondary real estate market badly with sellers having no option but to wait it out or to reduce prices. While the magnitude of reduction hasn’t been documented, it has certainly benefitted the homebuyers.

And as far as the primary real estate market is concerned, there shouldn’t have been any chaos at all since ready-to-move-in new homes, as well as under-construction projects, are primarily funded by banks. So even though this sector was insulated from the effects of demonetization, the general air of confusion and panic prevented buyers from investing- till recently.

The big brands of real estate developers with transparent practices, however, weren’t really affected, with business going on as usual!