Demonetisation is one of the best things to happen to real estate. Now, the sellers and buyers only have 3 alternatives, buy/sell, hold or lease. There is no going back and forth on a decision and waiting for various alignments to happen. Now either you will sell or lease or hold on till you don’t get a buyer or the price. For me, demonetization will result in simple, straightforward and easy transactions from now on. Here’s how I forecast demonetisation will actually affect India’s most expensive property market, Mumbai.
1) There will be no drop in prices
Mumbai property market is a mixed bag of primary and secondary sales and a lot of these transactions are interrelated, so there will be a deadlock for a while. Based on media reports, people will not buy and let us face facts, no owner will sell 20% to 30% lesser than the last quote. Yet, there are deals happening in Mumbai, mainly thanks to closed-door meetings, where both buyer and seller agree to a price based on the payment timeframe, demand and supply and of course the need to do a transaction. If someone has financial needs, they may be prepared to sell or buy at a correspondingly lower or higher rate. By and large, the Mumbai property markets are seen as very stable and most investors have a good holding capacity. Market-savvy sellers, will not drop prices nor opt to lease their properties out. Instead, they will wait for 3 to 6 months and then come back in the market when the time is ripe.
2) Lower interest rates will help
This is two dimensional. On one hand, if interest on housing loans comes down, people will have more disposable income which means more money in their pocket. Secondly, as with lower interest rates, people will now be able to afford monthly EMI’s and bridge the difference between rent and the EMI, which is typically 500 to 700 basis points higher. So if rates come down by 200 basis points, he may be tempted to buy a home rather than lease thanks to the difference of 300 basis points.
3) Real estate transactions will increase
Cashless real estate transactions will bring a lot of activity back into the market. Sooner or later, even people looking at having a cash element in their sales will have no choice but to agree to take the payment through cheques or clean and accountable methods. As a result, people will have to reinvest in real estate to save tax due to capital gains, which means more transactions will happen over a period of time.
4) The market will recover by March
Yes, real estate will have to go through a temporary deadlock as each stakeholder is waiting to see how the market will progress. The homebuyer is waiting for an interest rate cut and also the impact of GST rate reduction. Meanwhile, the developer is also waiting for the same, By March 2017; I expect the markets will get back on track and that we will see good sales from thereon. By May 2017, the Mumbai property market will also enjoy the impact of the Development Plan (DP) as well.
5) RERA will bring homebuyers back
With RERA already in place in the Central Government, Maharashtra is likely to announce a regulator by January 2017. This essentially provides another safety net for homebuyers, levelling the playing field while allowing developers with clean records and consistent delivery timelines to see good sales. A lot of homebuyers, who do not believe in under-construction projects, will also come back in the market thanks to the safety net that is RERA.
6) Major infrastructure projects are being executed
Mumbai’s infrastructure projects are on the move. The coastal road, the metro lines, the Navi Mumbai Airport, the Trans-Harbour Link, Cruise/Passenger Ships ports etc. are just a few projects that in different stages of execution. By 2020 or 2022, we expect most of these to be finished, giving a tremendous boost to development in the city. So keep this in mind if you are looking at investing in real estate and ensure that you maintain a 5-year investment horizon, in order to get the best returns.
7) Real estate is still a good investment class
Investors will surely consider pre-launch projects with a 3 to 5 Years horizon, keeping in mind that a fixed deposit will yield him less than 5% returns, while with real estate, if he negotiates high now, gets a good financial scheme and if the possession is 3 to 5 years away, then he can surely get a return upwards of 30% to 40%. It must be noted that pre-launch prices are in any case approximately 20% lower than current market prices.
8) Real estate offers good returns
Rental yield in Mumbai for residential properties is in the range of 2% to 4% and commercial properties yield 6% to 9%. While capital appreciation is more in residential properties, you cannot go wrong with either of these two investments. Just be sure to pick up fast-growing locations that have good connectivity including the presence of a Metro line. Also make sure you go with a good developer and that you keep a 3 to 5 year horizon and you are set. Demand for a pre-leased asset will continue, as that gives assured returns to investors.
9) Buyers will have plenty of choice
If you are a Buyer, this is the time to do your homework and look for properties you can invest in. If you are getting a clean deal, make sure you review it seriously. Considering the volatile nature of the market, many developers are giving assurance that if they do have to reduce prices for any reason, then the lowest rate will be applicable to the buyer. Make sure you negotiate these terms to protect yourself and to help you get the lowest rate available in the market.
10) Sellers need to play smart
If you are Seller, start showing your property to prospective buyers with an open mind. If you receive any offers, evaluate the same based on market conditions, trends, government policies, payment terms, demand and supply, micro market analysis etc. If you are buying another property after selling the current one, then do negotiate hard on your next purchase. In most cases, if the market sentiment is low and you are selling at a lower price, you can always bridge the gap by buying at a lower price as well. Market sentiments usually remain the same across the city, excepting the premium segment, which may have taken a harder hit as they were commanding a premium.
(Sandeep Sadh, Founder & CEO, Mumbai Property Exchange Pvt Ltd)
Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.