Monday, 5 December 2016

Real estate industry will boom again post demonetization!



Real estate and accommodation industry is the mother of all Industries with 100% capital,  100% labor. It's our own industry with 100% Indian contribution for its development.

Reasons why real estate industry will be in demand?

The below views are from an various industry experts on how the demonetization will boost real estate.

Last few days there has been a surge of messages from "Whatsapp Economists" with the simple theme that real estate prices will fall drastically due to Demonetization. That is ban on Rs. 500 and Rs. 1000 notes.

Here's a few Point summary of what actual experts with business and economic logic say:

  • Demonetization will flood the banking system with funds driving down both interest rates on deposits and loans.
  • If interest rate on fixed deposit comes down to 5-6 % then home Loans will come down to 7-8 % (since banks keep a margin of 2%-3%).
  • Historically at such low interest rates real estate industry gets a massive boost as property becomes attractive to everyone which includes real buyers, investors and middle class working professionals.
  • Even if the prices are kept as it is, small apartments, residential plots and duplex come within the reach of buyers due to lower EMI on loans.
  • Investors find investing in property more attractive than earning a paltry 5-6 % on bank deposit as  simply buying and renting out gives them more return and apart from it they create an asset and earn appreciation over a period of time.
  • Shopkeepers, retail malls, corporate houses and even professionals like doctors, consultants, chartered accountants can invest their money in real estate if they are getting loans at very reasonable rates from banks.
  • Demonetization will see the most money flowing in banking system from people in the unorganized / small scale sectors like farmers, traders, artisans, hoteliers, beauty shop owners, tuition classes, small contractors, maids, drivers, security guards etc. Crores of new people will enter into the banking system and they will be able to get loans from the banks to fulfill their dreams.
  • Government will have money to invest in infrastructure as banks can deploy huge amount of money in government securities. With a few lacs crore at its disposal, government can boost funding to infrastructure schemes such as smart cities, swacch bharat mission, affordable housing, new airports, national and state highways which will lead to better connectivity which can increase demand in tier II and tier III cities.
  • It is interesting to note that real estate prices show slower rise in countries which have a fully ready infrastructure like USA, UK, Japan etc. Whereas in a developing countries like India, there is a vast difference in prices in a cities before and after the development phase of quality Infrastructure.


Conclusion:

Recent developments such as passing of Real Estate Regulation Act (RERA), demonetization, GST Bill combined with government focus on infrastructure will only serve as positive factors for growth of real estate industry

Important factors of real estate industry:

  • Real estate industry contributes 7 % to India's GDP. 
  • Second highest employer after Agriculture.
  • Real estate industry supports more than 140 allied industries from large ones such as steel, cement and transport to smaller ones such as bamboo and rope making.
  • Real estate industry caters to the basic need of shelter for every citizen.
  • As per Government of India, more than 90 per cent of demand for real estate is in affordable and mid range category.
  • Biggest industries which contributes large share of taxes at all levels of Government: Municipal Corporations, State Government (VAT and Stamp Duty), Central Government (Service Tax and Income Tax).
  • Investments such as equity shares, commodities like Gold, Silver, Mutual Fund etc have seen large ups and downs. Real Estate is the only asset class which have given stable and constant growth over last several decades.
  • Real Estate has both value in use and value as investment.
  • Real estate investment is the best investment from a very long term angle as taxation happens only on sale and in case of reinvestment 100% tax can be saved.


With Indian economy becoming increasingly urbanized, it is expected that more than 50% of India's population will live in cities by next decade. This massive change in demographic and economic profile of the country will give big boost to real estate market.

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