For a novice Indian the term demonetization is very confusing. The confusion spurs from the likely impact of currency ban and the economic impacts of it. While this currency ban has been testing the patience of businessmen and working professional alike, it still remains to be seen the effects of this government policy on key business indicators.
One of that sector is real estate, and the impact on this sector post-demonetization is the question everyone asking. Will it help or will become the curse for real estate investment and what are the likely options for investment based on future trends of the economy? The article will look for the likely possibilities.
ROI on Real Estate Investment
The general theory that is making rounds is that a major amount of black money is invested in real estate sector. Now, when there is a stop of black money pouring in, the real estate market will slash prices current and future, bringing down the overall return on investment (ROI). So, while one can expect the property cost and real estate loan rate to go down a little, for now, will that also mean the future prices in a real state will remain low? Experts may not agree.
The cost of a property is directly proportional to the investment. Due to demonetization opportunity to invest black money is virtually over. The transactions are supposed to be clean and through identified gateways. The primary investment in real estate for land and material through white money will go up, eventually resulting in the high prices of property. This phenomenon is the most likely outcome out of demonetization.
The Supply Demand in Real Estate
The property prices will also go up based on the ‘supply’ factor. The genuine working class (the great middle class of India) is not greatly impacted by demonetization. Their demand for housing and real estate remains more or less static. However, with curbs on black money transactions, the small scale developers are likely to hesitate from pumping in money in new projects.
As there will be lesser housing projects, the supply is likely to fall as compared to demand. This shift in the demand and supply balance is likely to trigger the real investment prices. And this is likely to remain for the next two fiscal periods. Therefore, any investment in the real estate will possibly give a handsome ROI. In other words, the focus of real estate developers will loom towards working class community with white collar jobs, who are the most active property seeker.
Interest Rates and Impact on Home Loan
The RBI clause regarding the interest rate on loans for real estate is also expected to go in favor of the general public. The interest rates should fall, thereby luring investors and bring a general sense of wellbeing for this particular sector. This small step encourages the new potential investors to see property as one of the best possible ways to expect a fair return for their hard earned money.
The Inflation Worry
Demonetization will also fan the fire of inflation. Some economists project this trend as negative growth for long-term investors. With the progressive increase in prices of good and commodities, there is lesser to save and invest. Demonetization policy was enough to bring down the rate of development to snail pace.
Markets were empty and spending almost negligible. The short term deflation was a big dent to traders, but then this revert in trend with inflation almost suddenly can leave buyers in bewilderment and confusion. Inflation is never good for masses and can slow pace the growth of most economic sectors, including real estate.
Alternate Investment Options
So what are the best possible option to divert your investment? If you are hesitant towards real estate investment then there some other good opportunities to expect assured the return of your hard earned money.
- One of the best areas of investment in putting money in Gold Assets. The prices of gold came down rapidly because of the supply over exceeded demand. But for a smart investor, this is real time to buy gold assets. Gold being the international monetary standard will definitely see the increase in prices. And since donning gold is a fashion statement in India it appears to be a very wise investment.
- Insurance is another sector that guarantees a fair return on your investment. Insurance of yourself, family and even your employees is a good way to divert the funds for long-term future benefits. You can ponder over life insurance as well as health insurance as the most likely policies for investments.
- Mutual funds are the next best option of improved return on investment. The liquid mutual funds are in vogue and allow you to divert all your petty cash. They are extremely convenient to access, modify and gives you control of how much and when to disinvest.
This was our analysis on how demonetization has influenced real estate investment. I hope this blog will help you to take a wise decision about real estate investment. Further, if you have any query, please comment below!