15/11/2016
Views of Noted Economists, Chartered Accountants, Investment Gurus and Finance experts on Effect of Demonetisation and other recent developments on 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 Demonetisation ie ban on Rs 500/Rs 1000 notes. Here's a 10 Point Summary of what actual experts with business and economic logic say:
1. Demonetisation will flood the Banking system with funds driving down both interest rates on Deposits and Loans
2. If Interest rate on FD is just 5-6 % interest on Home Loans will come down to 7-8 % (since Banks keep an 2-3 per cent margin).
3. Historically at such Low interest rates Real Estate industry gets a massive boost as property becomes attractive to everyone: Buyers, Investors and even that invisible category called Businessmen/Professionals.
4. Even when prices are same, Apartments come within reach of Buyers due to lower EMI on Loans due to lower interest rate
5. 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. PLUS they create an asset and earn appreciation over a period of time PLUS they get income tax deductions
6. Shopkeepers, Retail Malls, Corporate Houses and even professionals like Doctors, Consultants, CAs jump in to buy property as they want preferred location and once that's gone they may never get that chance again. So, they buy at the first available opportunity instead of waiting for prices to fall.
7. Demonetisation will see the most money flowing in banking system from people in the unorganized / small scale sector: Farmers, Traders, Tailors, Hoteliers, Beauty shop owners, Tuiton classes, small contractors, House Maids, Drivers, Security Guards etc. Crores of new people entering Banking system means that they will also be eligible to get bank loans and fulfill their dream of owning a house
8. Government will have money to invest in infrastructure as Banks will deploy lakhs of crores in Government Securities. With a few lakh crore at its disposal, Government can only boost funding to infrastructure schemes such as Smart City Mission, Swacch Bharat Mission, Housing for All etc.
9. New Airport in town, better connectivity to National/State Highway, Upgradation in City Transport all lead to increase in demand and prices of properties in the city
10. 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 City before and after creation of Infrastructure
Conclusion:
In the final analysis, recent developments such as passing of Real Estate Regulation Act, Demonetisation, Goods and Service Tax etc combined with Government focus on infrastructure will only serve as positive factors for growth of Real Estate industry
Factors of Real Estate Industry which get missed due to one-sided picture created by social media:
1. Real Estate Industry contributed 7 % to India's GDP.
2. Second Highest employer after Agriculture.
3. Real Estate Industry supports more than 140 allied industries from large ones such as Steel, Cement and Transport to cottage ones such as bamboo and rope making.
4. Real Estate Industry caters to the basic need of Shelter for every citizen.
5. As per Government of India, more than 90 per cent of demand for Real Estate Is in affordable and mid range category.
6. In era of mechanisation and automation, Real Estate is the only Industry which still continues to provide regular employment to millions of daily wage earners.
7. One of the only Industries which contributes large share of taxes at all levels of Government: Local Government ie Muncipal Corporations etc (Building permission charges), State Goverment (VAT and Stamp Duty), Central Government (Service Tax and Income Tax).
8. 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 has given stable and constant one way growth over last several decades.
9. Real Estate has both value in use and value as investment.
10. 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 pc tax can be saved.
11. With Indian economy becoming increasingly urbanized, it is expected that more than 50 pc 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 over the 5-10 year horizon.
