Demonetization to offer great benefits for real estate market

“Demonetization is undoubtedly a landmark event in the history of our economy. It is bound to cause widespread disruption in the short term but will re-shape the way of commerce and economics in the future. I feel confident that these kinds of policy directives will move India into a new era,” says Surendra Hiranandani, Chairman & Managing Director, House of Hiranandani.

He further adds, “The primary reason behind this massive decision is to take down the menace of unaccounted money circulating in the economy. In my view, this move will be effective with initiatives taken by the government in weeding out corruption. Layers-upon-layers of regulations breed inefficiency and give way to corrupt practices. Demonetization accompanied by deregulation will produce great results.”

As per syndicated reports, black money constitutes 25-30% of India’s GDP indicating that the size of the parallel economy could be about Rs 28 lakh crore. Demonetization is expected to bring a substantial amount of funds into the system. It will also bring a larger number of people into the banking system.

Since 2010, there has been a lot of pain in the market where developers sold properties at low prices and were hit by severe inflation then, resulting in a large number of projects being uncompleted. Construction and approval costs spiraled out of control. This was coupled with very high-interest rates as borrowings are essential for construction projects. Most projects sold in that period resulted in heavy losses on the balance sheets of developers.

Demonetization is expected to reduce inflation and interest rates considerably which would make projects viable. Developers will be able to have a handle on costs through the life of the projects.
“The primary residential market and projects undertaken by credible and reputed builders will not be affected,” says Hiranandani.

The benefits of low inflation, low interest rates and transparency will give a big boost to real estate development in the country, only if it is coupled with deregulation.