Would Real Estate Prices Fall on Demonetization Move?

Tue, 22 Nov Pre-Open

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Stocks in the realty sector are the worst affected since the announcement of demonetization of 500 and 1,000 rupee notes. S&P BSE Realty Index has witnessed a sharp fall of around 20%. Certain stocks such as DLF and Indiabulls Real Estate Ltd have fallen by 24% and 25% respectively since the news of demonetization came in.

The fall is mainly triggered on fears that real estate prices will crash post this move which in-turn would affect the bottom-line of the companies. Experts believe that real estate prices could crash by as much as 30% in the next three to six months. So, is the crash in real estate prices inevitable or would it remain put?

Here is Vivek Kaul's take on the same.

• "Typically, real estate throughout the length and breadth of India is bought using black money. A significant part of the payment is made in cash. Either this is black money being used or it is white money being converted into black. Experts are of the view, that the Modi government's crackdown on black money is likely to lead to real estate prices coming down significantly.
  
  The logic is that with Rs 500 and Rs 1,000 no longer being legal tender, it will become difficult to make the black component of the payment using currency notes. With the cash component becoming difficult to pay, it is expected that the real estate companies and builders will have to cut prices.
  
  This is the logic being offered by experts who are forecasting a fall in real estate prices. How do I see the situation? Given that I have been bearish on real estate for as long as I have been, it would be easy for me to say that prices will crash. But the past data (whatever limited data we have on real estate) doesn't suggest the same.
  
  So, my feeling is that real estate prices will fall, but whether they will crash or not, depends on how the government reacts to the situation. Allow me to explain."

Read his full explanation to whether the real estate prices will crash and the impact of demonetization in the real estate sector.

While, we believe that the demonetization move will create more liquidity in the market, in-turn pushing the interest rates down. This will be beneficial for the home loan buyers. Plus, this whole move will drag the real estate prices lower which in-turn would possibly create more demand for real-estate. The real-estate demand has remained subdued for a few years now especially in the metros. Lower prices of real estate coupled with lower home loan interest rates could push buyers to purchase properties.

Vivek Kaul has come out with a special report on how demonetization can have an impact on your investments, properties and effectively your wealth. It's a mind boggling read and you can claim this copy for free.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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