A Post-Demonetization Festival Guide to Home-Buying

Mar 07, 2017

Traditionally, the Dusshera-Diwali season and the start of the new Samvat year have been when the real estate industry dolls itself up with discounting and attractive payment schemes to lure the hesitating home-buyer. This year though, Samvat has got off to a rocky start with the government's call to demonetize Rs. 500 and Rs. 1000 notes.

Let's do a round-up of what has changed/is likely to change.

1. At present, all primary market transactions, especially in Mumbai and NCR, have come to a standstill. Wait-and-watch seems to be the order of the day.

2. No major impact is expected among projects floated by organized realty players who have already transitioned to fully-transparent deals, and were in any case readying themselves for full RERA (Regulation and Development Act, 2016) compliance. Among smaller players who had cash components to their sales will face a business lull as buyers back away till deals are realigned to White-only.

Related: Do more people buy properties during the festive season in India?

3. Both RERA and demonetization should spur positive reforms and transparency leading to sales' growth in affordable housing.

4. The secondary/re-sale market will see a pronounced impact though of demonetization since cash-components were a regular portion of such transactions. This market may in fact see an upward trend as sellers begin to quote higher to buffer for capital gains taxes.

5. With more transparency setting in within land-purchase deals, where cash was as much as 40% of the deal-value resulting in sluggish growth, buyers can expect a trickle-down effect in end prices of new properties in the long run.

In this scenario, here's what the prospective home buyer should keep in mind:

1. For a buyer interested in the primary market, i.e. purchase of an under-construction, or ready-to-occupy new flat

  1. Do a sit-down with your builder once more and redraft your deal (especially, if it carried any cash component earlier). If the agreement is being revised upwards that impact will reflect in stamp duty as well.
  2. The removal of Rs. 500 and Rs. 1000 notes has a direct impact on the cash reserves available to pay towards construction material and labour costs, so until those sectors tide over this transitional phase, project delays can be expected. Speak to your broker, other realty experts to get a sense of whether you should postpone your deal altogether.
  3. The ideal would be to wait and watch for lowering prices, but if purchasing a house is urgent, then the following will always be sound advice
  1. Discounts and offers aside, ensure that this is a long-term residence for you, that you can bear the customer pay-out required (the rest being credit from a lender) and that your upcoming EMIs can be comfortably serviced at your income levels.
  2. Be thorough with diligence checks - if you're availing credit, your lender will carry this out and charge you accordingly. If you can informally get a check done through a 3rd party, so much the better.
  3. Do you need all the freebies on offer - be ruthless, don't accept air-conditioners or washing machines just because they're on offer. If you already have these appliances, get the builder to knock his price down further for taking them out of the deal.
  4. Your builder should ideally have funding options from NBFCs, PSU and Private Banks - this gives you a range of offers to compare from a processing fee standpoint. Generally, NBFCs tend to have higher costs of funds.
  5. (Re)Check the builder's track record - remember, demonetization will be severely cramping builders' cash pay-outs in the construction phase, find out whether your builder is reassessing the earlier promised delivery date.

The overall shake-out to the real-estate sector is expected to be positive and will result in a shake-out of smaller players who dealt in cash-heavy deals. Additional cooling off and bettered transparency in land transactions will eventually result in a lowering of end-user prices as well. All in all, these are interesting times we are living in.