2017 will see bumps in the Indian market as demonetisation takes its toll; however, the move may result in lower borrowing costs, more affordable housing and a more transparent property market.
India’s demonetisation move is expected to bring down property prices by up to 30% in the next few months before stability returns, say a majority of experts. Soon after Indian Prime Minister Narendra Modi announced the scrapping of old Rs 500 and Rs 1,000 notes on 8 November 2016, the sale of pre-owned houses and developer-built small properties has practically come to a standstill.
Demonetisation is supposed to crackdown on unaccounted wealth, tax evasion, terror financing and counterfeit currency. The move indeed took out 86% of the value of currency in circulation, and economists have warned that it would dent consumer demand including housing in the short term.
Cash has long played a very important component in housing transactions in India especially the secondary market, making up 20 – 50% of the purchase price. Up to 40% of the cash is believed to be black and was used to evade taxes through underreporting of official prices, as well as for laundering purpose.
The property industry is hoping that eventually, stability will return as more deposits in banks means the cash-rich banks will start lowering interest rates and lending out more. “Hopefully, the quantum of home loans will pick up after stability returns, this will spur buying again,” says an observer.