While we are still coming to terms with the long term repercussions of this move, one of the areas that will see medium to long term benefits is real estate.
In the move to adopt a cashless economy, millions of Indians have rushed to deposit their money in their accounts. As a result, the banking system has seen a huge upsurge in funds.
This in turn will lead to lower interest rates on deposits as well as loans.What’s even more significant is that home loan interests are expected to come down to as low as 7 to 8%.
For real estate, this is actually a huge boost because at such low rates, most people start looking at property as a viable investment opportunity and it becomes attractive to not just buyers and investors but also the invisible category of businessmen and professionals.
Property becomes accessible to more buyers because of the chain reaction of lower interest rate leading to lower EMIs on loans.
For buyers, this could be a dream scenario even if property prices remain the same, as it has become more affordable for them.
3. More Lucrative Investment
In times of demonetization, investors are looking for opportunities that will create more wealth for them and they have realized that investing in property is a much more lucrative investment than earning the mere 5-6% interest on bank deposits as buying and renting out property gives much more return.
What’s more important is that a property is an asset that will appreciate over time and even result in income tax deductions in future.
The sharp spike in bank deposits post demonetization has also come from the unorganized and small scale sector. Crores of working people who relied on cash transactions until now have entered the banking system.
People like farmers, traders, tailors, hoteliers, beauty shop owners, tuition classes, small contractors, house maids, drivers, security guards are some of the new wave of bank account holders. What this also means that now, many of these people will eventually be eligible for bank loans and they can fulfill their dream of owning a home.
One of the direct effects of demonetization is that government will have money to invest in infrastructure because banks will need to deploy lakhs of crores in Government Securities.
With all this money at its disposal, the government can boost funding for infrastructure schemes such as Smart City Mission, Swacchh Bharat Mission and Housing for All etc, which will affect the real estate market positively.
As part of these infrastructure building activities, smaller towns will soon get airports, leading to better connectivity.
Real estate value will go up once this happens and there will be demand for property.
In developed countries like USA, UK and Japan etc, where infrastructure is already top notch, real estate prices seems to show a slow rise whereas developing countries like India have seen a vast price difference in a city’s real estate before and after development of infrastructure.
Demonetization did not sound the death knell for real estate as most people might have believed. There are benefits in the long run which should not be ignored. This could either be directly through lowered interest rates or indirectly, through better infrastructure and connectivity.