News: Should you buy real estate now post demonetisation?-08.01.2017

Date created 08.01.2017 18:40:11

Should you buy real estate now post demonetisation?

Kusum is an 35­year old working woman. She has been saving diligently to buy a house in Mumbai and has almost clinched a deal. She has shortlisted a property in the suburbs, finished the paperwork for the home loan and is ready to make the down payment. However, since demonetisation was announced, there’s been a lot of talk about its impact on the property market. Kusum is worried because she has heard some of her colleagues discuss how the property market has ‘collapsed’ and corrected close to 20% already. Is this the right time for her to buy property? The demonetisation move augurs well for home buyers. It’s a given that volumes in real estate will start declining as black money exits the system and prices fall in the short­term. However, Kusum should realise that it might be way too soon to be reaching a conclusion regarding price correction. There is no way to be sure that the immediate discount is the ‘fair value’. While any correction right now may look quite enticing, what if the correction is much deeper ovet the next few months? In an uncertain environment such as this, it is not advisable for simple investors to take a call on market direction. This is her single largest investment, and being locked into something that has a chance of losing value, or the possibility of being stalled in terms of completion or paperwork and handover, due to constraints on the part of the builder, is a risk that is best avoided. In time, the real estate sector is likely to reorganise itself into corporatised and transparent asset class. Tax incidence and avoidance have been the driving factors behind the prevalence of the ‘cash’ component in real estate deals. It goes without saying that even the attitude of sellers and buyers regarding tax implications must undergo a significant change in the light of the Government’s recent move to curb the circulation and hoarding of black money. Kusum should refrain from having a knee­jerk reaction, given the circumstances. She should instead, wait for the panic to settle down. Waiting a few months might also allow her to benefit from lower interest rate on home loans as banks drop their lending rates. She can buy her home once the changes start taking effect in the market, and real estate prices stabilise. (The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.