Demonetisation will not affect us, say realtors

In spite of the fall in the number of land registrations post demonetisation, city realtors representing Credai (Confederation of Real Estate Developers Association of India) said that the real estate sector will not be affected by the ban on higher currency notes.

Speaking to reporters on Wednesday, Credai president D B Mehta said that this is the right time to start buying apartments or flats. The notion that house or apartment prices will drop by 30% or more and land prices will come down by 50% and more is not true.

That even the GDP growth is affected by demonetisation is far from truth, he claimed, and added that the prices of houses and apartments will partly be affected in Mumbai – where the price per square feet of an apartment is between Rs 40,000 and Rs 1 lakh – and in Central Bengaluru, where the cost is between Rs 15,000 and Rs 25,000.

Mehta added that the price level will fall initially but recover soon as the banks pump in new currency to the market in replacement of the old currency. Hence, there is no fear of deflation.

The Indian economy will see a change in the means of transaction from cash to bank or digital and purchasing power of money will increase, leading to a growth of the economy. Although the rural areas will have difficulties in the initial stages, they will recover with the banks infusing currency into the market, he felt.

Initial stages

Stating that apartment prices may see a small decline only in the initial stages of demonetisation, more out of liquidity issues than anything else, he said it will recover once the changes in means of transaction are implemented from part of cash to either 100% bank or digital.

Demonetisation will only reduce the land prices by 15% but not the cost of construction or taxes. Taxes contribute to more than 30% of the total cost. Land prices constitute only 30% of the cost of construction of apartments in a Tier-II city like Mangaluru. Hence, the decline in prices of apartments will be minimal – about 5% if any, he added.

Stating that real estate has seen a slow down the last two years and prices of apartments have already come down by 10%, Mehta said that there is no room for further reduction as most builders are selling at low margin or even at losses.

All the stock exchange-listed real estate companies have come down in value by 50% to 70% in the last two years with decline in profitability. Post demonetisation, the decline in land prices in tiers II and III cities will be minimal as most of the land is either ancestral or family holdings.

Mehta said that demonetisation will benefit the sector as rate of interest on housing loans can get slashed from existing 9.25% to less than 8%. Rate cuts by the RBI will further bring down the rate of interest to the apartment purchasers by reducing their EMI outflows.

“The much awaited RERA (Real Estate Regulation Act) bill will come into force from May 2017 will bring about transparency and investors confidence back in the real estate sector,” he added.