Forecast of Price Fluctuations in Realty Market Due to Demonetization
Apr 18, 2017 Real Estate News
Demonetization is one of the most discussed topic these days where there have been constant speculations doing the round which have created various opinions among the public which say whether the demonetization will bring down the prices of property or whether the market will see a hike in the property prices. Some have opinion that there will be a cut down on all the blown up prices and some says there will be a hike in the real estate prices. The financial analysts have been trying to ascertain the cost beneficiaries due to this whole demonetization step. There are various reasons and theories laid down by them which give answers to both whether there will be rise or downfall in the realty sector. So let’s further understand the reasons for both the scenarios.
Reasons for rise in the property prices due to demonetization
Reasons for downfall in the property prices due to demonetization
Reasons for rise in the property prices due to demonetization
- As the deals for constructing a building entirely lays on the land purchase prices and since there is no such help for land purchase from RBI as it’s known that land dealing are usually done in cash and developers have no other option to park their extra cash so it’s estimated that due to this entire situation prices of land may increase leading to increase in the prices of property.
- Black money has been playing a substantial part in the real estate market and it’s a known fact that black money cannot be completely evaded from the real estate market as majority of the transactions have been happening in black money since years and also all the developers cannot afford to buy land with the help of complete white money. So telling that prices will fall down will not be a complete truth.
- As mentioned earlier, banks do not finance money for land purchases and the lender cannot park their existing black money anywhere. To get funds for land purchase in complete white money they need to pay a high rate of interests which at the end leads to getting the entire output costlier.
- Also, the supply of land tends to remain constant and inelastic and the demand has been constantly increasing due to growing population so during such time the demand may not be high but may increase once everything seems to be settled down till the time it get settled down developers will go slow on the new project launches
Reasons for downfall in the property prices due to demonetization
- Due to the ban on old notes of Rs 1000 and Rs 500 notes for the purpose of getting all the black money out due to this step there will be fall in the demand for those banned notes will no more be acceptable and as people do not have the resources to buy the property so there will be downfall in the prices due to less or no demand.
- The transactions will get much transparent and clear as before to get the clearances and approvals developers had to bribe the officials, municipal authorities etc. which would lead to add on of extra cost at the end so now due to things getting clear and no such practices continuing there will be no added cost which will get the property prices to be cheaper.
- While the entire scenario seems to be chaotic initially but the move will structurally prove to be a positive bringing lot of liquidity into the sector which will also help to promote growth. All the frozen property rates are likely to fall down.
- Properties may also be available on sale in the secondary market with discounts due to the financial stress. Also, some players may get busy in figuring ways to clear out the black money and to reduce the losses so this will create a lull in the market creating downfall at the prices.
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