Pics: Joshwa D'Souza
Daijiworld Media Network - Mangaluru (JD)
With Inputs from Media Release

Mangaluru, Nov 30: On November 8, an announcement was made by the Prime Minister of India in an unscheduled live televised address to the nation. The PM declared circulation of all Rs 500 and Rs 1,000 banknotes of the Mahatma Gandhi series as invalid effective from the midnight of the same day, and announced the issuance of new Rs 500 and Rs 2,000 banknotes of the Mahatma Gandhi new series in exchange for the old banknotes.

The government claimed that the demonetisation move is an effort to stop counterfeiting of the current banknotes allegedly used for funding terrorism, as well as a crackdown on black money in the country. The move is also aimed at reducing corruption, drug menace and smuggling.

With economists and experts and media fighting over giving commentary on the aftereffects of demonetisation, the Mangaluru chapter of Confederation of Real Estate Developers' Associations of India (CREDAI) details below the myths and facts surrounding demonetisation especially with regards to the real estate sector.

Myths:

A. House/apartments prices will drop by 30% or more.
B. Land prices will come down by 50% or more.
C. GDP growth will come down and unemployment will increase.

Facts:

A. The price level will fall initially but will recover as soon as the central bank pumps in new currency to the market in replacement to the old currency. Hence no fear of deflation.

B. Indian economy will see change in the means of transaction from cash to the bank or digital only and purchasing power of money would increase leading to growth of economy. Only the rural areas will have difficulties in the initial stages but will soon recover once the central bank infuses fresh currency into the market and digital economy has a wider reach.

C. Apartments prices may see a small decline only in the initial stages of demonetisation more out of liquidity issues than anything else but will recover immediately once the changes in means of transaction is implemented from part cash to either 100% bank or digital. Demonetisation will only reduce the land prices to 15% but not the actual cost of construction or taxes. Taxes contribute more than 30% of the total cost. Land prices constitute only 30% of the cost of the apartments in a Tier II city like Mangaluru. The decline in prices of apartments will be minimal, say about 5%.

D. Real estate has been in a slow down for the last two years and prices of apartments have already come down by almost 10%. There is no room for further reduction as most Builders are selling at a very low margin or even at losses. All the stock exchange listed real estate companies have come down in value by 50% to 75% in the last two years with decline in profitability. This in itself is a testimonial of no further room for a decline.

E. The overheated premium pockets in cities like Mumbai, Gurgaon, Pune, Chennai and Bengaluru would have scope to correct by 10 to 15%. But even in tier I cities the suburban areas or outskirts have very little scope to correct. Tier II and tier III cities have hardly any scope for prices to fall further. Commercial properties may have a little larger correction.

F. The new projects launch has come down by 30 to 50% in the last one year and will further decline. This will reduce the future supply drastically.

G. However the land prices have not fallen. The decline in land prices in TIER I cities may be to the tune of 25% as large parcels of land is held as trading stock which may get offloaded in the market. Whereas the decline of land prices in tier II and tier III cities will be very minimal as most of the land is either ancestral land or family holdings. Further any reduction in land prices may have downward pressure on prices only for the new launches.

H. The black money component in the real estate has helped in reducing the cost to the buyer due to savings in taxes which was passed on the customers. The real estate market has perfect competition and is plagued by tremendous over supply of finished stock. All savings are passed on to the customers. Now with full bank payment there will be additional cost by way of taxes which will increase the cost and price rather than decrease.

I. The primary market, that is, sale by builders in most cases is almost in cheque whereas in the secondary market, that is, resale there is a big component of cash. Resale market may take a hit due to demonetisation which will boost the sale in the primary market.

J. GDP will see an upward growth in the medium to long term asthe Governmentwill have more money to spend on developmental projects.

K. RERA will help about bringing transparency and investors confidence back in the real estate sector. The flow of both domestic and foreign funds as well PE investors will boost the demand.

Positives of Demonetisation:

a. Increased liquidity with bank due to increase in deposits.

b. Increase collection of taxes both direct and indirect.

c. Reduction in central government fiscal deficit.

d. Lower cost of funds to the banks will put downward pressure on MCLR leading to lower interest rates on lending. Housing loan interest rates will come down from 9.25% to below 8%. The 10 year government bond yield is already down by 50 basis points at 6.4%. Rate cuts by RBI will further bring down the rate of interest to the apartment purchasers by reducing their EMI outflows.

e. Initially the GDP will be negatively affected in the short term due to the non availability of new currency notes and the shut down of parallel economy. But in the medium to long term increased credit lending due to increased liquidity that too at lower rate of interest will revive economic growth and GDP.

f. Increased outlay of Funds for priority sectors as government will have more funds.

g. Increased funding into infrastructure developments as money collected by way of taxes and possibly a huge dividend from RBI in the hands of government.

h. GST will be a game changer once implemented i.e. by end of next calendar year further boosting the GDP.There is a hope that more money will enter the formal economy and that it translates into double-digit growth along with the implementation of GST.

i. The budget for 2017-18 will surely have fiscal stimulus for the housing and real estate sector if the Prime Minister's dream of hosuing for all by 2022 has to be met.

Mangaluru being a tier II city and one of the Smart Cities will have improved fundamental supportive of real estate prices. The public at large should differentiate that there can be a larger fall in Tier I cities real estate sector, Tier II cities have hardly any room for further decline. The best way to invest is Buy Low and sit tight. This is the right time when the customers should go for bargain hunting and buy the apartments of their choice from a CREDAI member builder. All the bad news are out and once the good news start coming in, the real estate price will see an upward move. With fewer new project launches, the demand supply situation will change very fast. Within a year 3 years of ready stock will look like 18 months stock with lower new supply and increased off take.

Best time to invest: CREDAI Mangaluru president

Addressing a press meet here on Wednesday November 30, CREDAI Mangaluru president D B Mehta said, "Apartment prices can fall in tier I cities like Delhi and Mumbai where they are already high, but it is a myth that prices will come down even in tier II and tier III cities.

"On the contrary, after a few months, the prices will rise, as the prices of building raw materials like steel, aluminium, cement are on the rise and land owners are also not ready to reduce the prices. Similarly, labour charges are also on the rise. However, if a CREDAI member is coming up with attractive offers now, then this is the best time to invest," he said.

Mehta further said, "The opinions that have been put forth by experts of various fields in various media are not from the people who are into real estate business. Hence it is totally a policy of scare-mongering and the investors and people must not listen to them.

"CREDAI has always been there to protect the interests of the investors. After a few months the builders who are not registered with CREDAI are going to face tough times, as the new RERA law will allow builders only in the organised sector, while builders in the unorganised sector who used to compete with CREDAI members in an unhealthy manner and indulge in black and white business will vanish," he said.

He also added that that as the cash in-flow is high in banks due to demonetisation, it will create more job opportunities, and interest rates of housing sector are likely to come down.

CREDAI secretary Naveen Cardoza, S M Arshad, Sudheesh Karunakaran, Willam D'Souza and others were present.