Not that long back, the real-estate sector in India was totally seller dominated. Even builders with the worst reputation for delays in completion always had a ready stock of buyers as nobody exemplified the “roof over our head” aspiration as much as Indians. This automatically meant that developers had total control over the market and things like design and pricing were as per what the builders deemed fit. The rise in demand for apartments meant that customers were ready to grab almost whatever came their way without putting much thought to it.
Those days are now gone! Developers are now ensuring that everything is in place. Lots of them are now offering customers things like cars and gold coins apart from discounts and slashed booking rates.
It had been anticipated that the real-estate market would get revived when the new government took charge in 2014, but it did not happen. This meant that the usual urgency that involved buying a house for residing or investing purposes was not very widespread. This urgency was instead replaced by complacency with most buyers not rushing to buy a property. They felt that since prices would be dropping, they would rather wait and see if the prices fell further or not.
The current demonetization decision by the government will be a further setback for an industry already reeling under recession, but only on a short-term basis, and for those builders who depended heavily on unaccounted cash. In the medium to long term, this industry will reap the benefits of becoming a much more transparent segment, yielding to the more reputed or compliant builders. Inflated and speculative pricing for pre-owned and secondary properties will go down drastically. This will be an added benefit for any prospective home buyer, as rates on interest have also gone down by 1.5% in the last couple of years. Let’s have a look at what is going to happen to some of the various segments in real estate.
Residential Real Estate
These are generally the most transparent of all the deals, as the residential segment is primarily influenced by home finance players. Hence, this segment is expected to undergo minimal change in large cities like Bangalore. It is mainly the smaller cities which will face a business crunch as most of the property deals are done in cash. Apart from this, the secondary home market, as mentioned before, is also expected to take a hit since this segment also sees a lot of cash changing hands.
Commercial Real Estate
This segment does not see cash involvement at a big level and that is the main reason why there will be minimum effect on office/industrial leasing and transactions businesses. However, there can be some effects on the way the transactions are carried out and one will have to wait see if the market leans to the buyer’s side in spite of corporate benefits in industrialized states like Karnataka.
Real-estate Investment Markets
Projects could be delayed based on the availability of informal sources of capital. This increases opportunities for institutional capital, as the market will suddenly seem more attractive and transparent. If banks start funding transaction of land heavily, then the prices of land will go down.
For people looking to buy a Villa in Bangalore, the opportunity may have just got a little easier. In what was already a buyer-driven market for the last few months, now has the end-users with extra reason to negotiate.
The residential market in the city has generally always been stable and depending on the type of residential project and location, offer good value on short to medium-term investments. There is good news for people looking to invest in commercial realty as well as Bangalore has been the top commercial realty location for the past couple of decades.
In conclusion, it can be said that after this current situation of demonetization and with the market anyways going through a lull, the balance of power has shifted even more in the direction of the buyers as the entire industry moves towards becoming a more transparent one.