Demonetisation Boon: Home Buyers Set to Gain from Interest Rate War

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There is currently a lot of debate happening on how the government’s demonetisation move will impact the real estate sector. Home loan seekers may be in for a windfall with mortgage companies set to embark on an interest rate war amid a slump in the cost of funds as a consequence of demonetisation, in the process acting as a tonic for the moribund real estate sector.

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Courtesy - Shutterstock

Demand for homes and home loans slumped after the government announced on November 8 that Rs 500 & Rs 1000 notes would cease to be legal tender. This bold move of Government has suddenly cut off the supply of cash money from the market which was the strength and tool of real estate players. Will this affect the real estate sector? How will it affect the prices of land and flats across India? Will it affect the ongoing projects as well as projects in the pipeline? How this will affect the property transactions that are done but yet to close? What will be its short term, medium and long term effects?

Mortgage companies like Housing Development Finance Corp (HDFC), Indiabulls Housing Finance and DHFL Ltd may slash rates by 25-50 basis points in the next few weeks as they are under pressure to push growth amid sluggish demand, said industry executives familiar with the matter. A basis point is one-hundredth of a percentage point.

“Demonetisation has inadvertently helped reduce funding costs for us as we raised cheap money from the bond market,” said Indiabulls Housing Managing Director Gagan Banga. “we should be able to pass on the benefits of lower borrowing costs to customers as we expect higher home loan demand in coming quarters.” He didn’t say what the new rates would be.

Developers say both demand and prices have started crumbling even as analysts believe that the government’s move will help the sector move towards transparency, accountability and maturity.

The demonetisation move has hit us hard, there are no sales at the moment. Customers are in a wait-and-watch mode and neither cash nor cheque transactions are taking place. In fact, in some cases, ongoing bookings are also getting re-negotiated,” said Manohar Shroff, partner, Shivam Builders, Navi Mumbai.

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