Demonetization To Benefit Home Buyers

Year 2016 saw bidding adieu to 500 and 1000 rupee currency and a serious churn to Indian economy. Demonetization affected various Indian sectors that deal with the practice of cash transactions including the real estate market.

But each coin has the other side too. Demonetization affected Indian real estate market with many positives too:

1) Affordable homes: Where owning a good house in urban areas remain a dream. With demonetization will surely curb the practice of cash payments in property deals, lowering down the inflation and making homes affordable for the common man.

2) Reduction in Interest rates of home loans: Demonetization saw a large inflow of fresh deposits in banks. The slow economic growth is surely to see lower demand for bank loans in corporate as well as individual sectors. This may result in reduction in home loans over next 6-12. This reduction in home loans will benefit the new home buyers as well the old buyers who have availed the home loan on floating rates.

3) Higher loan eligibility: Higher loan eligibility is expected to increase due to lower interest rates and all cheque transaction. Till now, the cash component involved in property transactions in Indian real estate market is estimated at 25%. These cash transactions are usually higher in lands and high-end properties while it is lower in case of affordable home segments such as apartments and flats. Salaried buyers tend to prefer all cheque transactions while self employed buyers prefer paying more in cash. Home loans are usually not available for funding the cash component of the property. With reduction in cash component and increase in cheque component, the overall loan eligibility will increase benefitting home loan borrowers.

With demonetization, huge amounts of cash will be under the formal banking system. Banks with excess liquidity will sanction more home loans at lower interest rates thus benefitting the customers. All this, surely seems to bring happy news to the house hunters.