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Mangaluru: Myth that land prices will fall by 50% due to to demonetisation: CREDAI


Pics: Joshwa D'Souza
Daijiworld Media Network - Mangaluru (JD)
With Inputs from Media Release

Mangaluru, Nov 30: On November 8, an announcement was made by the Prime Minister of India in an unscheduled live televised address to the nation. The PM declared circulation of all Rs 500 and Rs 1,000 banknotes of the Mahatma Gandhi series as invalid effective from the midnight of the same day, and announced the issuance of new Rs 500 and Rs 2,000 banknotes of the Mahatma Gandhi new series in exchange for the old banknotes.

The government claimed that the demonetisation move is an effort to stop counterfeiting of the current banknotes allegedly used for funding terrorism, as well as a crackdown on black money in the country. The move is also aimed at reducing corruption, drug menace and smuggling.

With economists and experts and media fighting over giving commentary on the aftereffects of demonetisation, the Mangaluru chapter of Confederation of Real Estate Developers' Associations of India (CREDAI) details below the myths and facts surrounding demonetisation especially with regards to the real estate sector.


Myths:

A. House/apartments prices will drop by 30% or more.
B. Land prices will come down by 50% or more.
C. GDP growth will come down and unemployment will increase.


Facts:

A. The price level will fall initially but will recover as soon as the central bank pumps in new currency to the market in replacement to the old currency. Hence no fear of deflation.

B. Indian economy will see change in the means of transaction from cash to the bank or digital only and purchasing power of money would increase leading to growth of economy. Only the rural areas will have difficulties in the initial stages but will soon recover once the central bank infuses fresh currency into the market and digital economy has a wider reach.

C. Apartments prices may see a small decline only in the initial stages of demonetisation more out of liquidity issues than anything else but will recover immediately once the changes in means of transaction is implemented from part cash to either 100% bank or digital. Demonetisation will only reduce the land prices to 15% but not the actual cost of construction or taxes. Taxes contribute more than 30% of the total cost. Land prices constitute only 30% of the cost of the apartments in a Tier II city like Mangaluru. The decline in prices of apartments will be minimal, say about 5%.

D. Real estate has been in a slow down for the last two years and prices of apartments have already come down by almost 10%. There is no room for further reduction as most Builders are selling at a very low margin or even at losses. All the stock exchange listed real estate companies have come down in value by 50% to 75% in the last two years with decline in profitability. This in itself is a testimonial of no further room for a decline.

E. The overheated premium pockets in cities like Mumbai, Gurgaon, Pune, Chennai and Bengaluru would have scope to correct by 10 to 15%. But even in tier I cities the suburban areas or outskirts have very little scope to correct. Tier II and tier III cities have hardly any scope for prices to fall further. Commercial properties may have a little larger correction.

F. The new projects launch has come down by 30 to 50% in the last one year and will further decline. This will reduce the future supply drastically.

G. However the land prices have not fallen. The decline in land prices in TIER I cities may be to the tune of 25% as large parcels of land is held as trading stock which may get offloaded in the market. Whereas the decline of land prices in tier II and tier III cities will be very minimal as most of the land is either ancestral land or family holdings. Further any reduction in land prices may have downward pressure on prices only for the new launches.

H. The black money component in the real estate has helped in reducing the cost to the buyer due to savings in taxes which was passed on the customers. The real estate market has perfect competition and is plagued by tremendous over supply of finished stock. All savings are passed on to the customers. Now with full bank payment there will be additional cost by way of taxes which will increase the cost and price rather than decrease.

I. The primary market, that is, sale by builders in most cases is almost in cheque whereas in the secondary market, that is, resale there is a big component of cash. Resale market may take a hit due to demonetisation which will boost the sale in the primary market.

J. GDP will see an upward growth in the medium to long term asthe Governmentwill have more money to spend on developmental projects.

K. RERA will help about bringing transparency and investors confidence back in the real estate sector. The flow of both domestic and foreign funds as well PE investors will boost the demand.


Positives of Demonetisation:

a. Increased liquidity with bank due to increase in deposits.

b. Increase collection of taxes both direct and indirect.

c. Reduction in central government fiscal deficit.

d. Lower cost of funds to the banks will put downward pressure on MCLR leading to lower interest rates on lending. Housing loan interest rates will come down from 9.25% to below 8%. The 10 year government bond yield is already down by 50 basis points at 6.4%. Rate cuts by RBI will further bring down the rate of interest to the apartment purchasers by reducing their EMI outflows.

e. Initially the GDP will be negatively affected in the short term due to the non availability of new currency notes and the shut down of parallel economy. But in the medium to long term increased credit lending due to increased liquidity that too at lower rate of interest will revive economic growth and GDP.

f. Increased outlay of Funds for priority sectors as government will have more funds.

g. Increased funding into infrastructure developments as money collected by way of taxes and possibly a huge dividend from RBI in the hands of government.

h. GST will be a game changer once implemented i.e. by end of next calendar year further boosting the GDP.There is a hope that more money will enter the formal economy and that it translates into double-digit growth along with the implementation of GST.

i. The budget for 2017-18 will surely have fiscal stimulus for the housing and real estate sector if the Prime Minister's dream of hosuing for all by 2022 has to be met.

Mangaluru being a tier II city and one of the Smart Cities will have improved fundamental supportive of real estate prices. The public at large should differentiate that there can be a larger fall in Tier I cities real estate sector, Tier II cities have hardly any room for further decline. The best way to invest is Buy Low and sit tight. This is the right time when the customers should go for bargain hunting and buy the apartments of their choice from a CREDAI member builder. All the bad news are out and once the good news start coming in, the real estate price will see an upward move. With fewer new project launches, the demand supply situation will change very fast. Within a year 3 years of ready stock will look like 18 months stock with lower new supply and increased off take.


Best time to invest: CREDAI Mangaluru president

Addressing a press meet here on Wednesday November 30, CREDAI Mangaluru president D B Mehta said, "Apartment prices can fall in tier I cities like Delhi and Mumbai where they are already high, but it is a myth that prices will come down even in tier II and tier III cities.

"On the contrary, after a few months, the prices will rise, as the prices of building raw materials like steel, aluminium, cement are on the rise and land owners are also not ready to reduce the prices. Similarly, labour charges are also on the rise. However, if a CREDAI member is coming up with attractive offers now, then this is the best time to invest," he said.

Mehta further said, "The opinions that have been put forth by experts of various fields in various media are not from the people who are into real estate business. Hence it is totally a policy of scare-mongering and the investors and people must not listen to them.

"CREDAI has always been there to protect the interests of the investors. After a few months the builders who are not registered with CREDAI are going to face tough times, as the new RERA law will allow builders only in the organised sector, while builders in the unorganised sector who used to compete with CREDAI members in an unhealthy manner and indulge in black and white business will vanish," he said.

He also added that that as the cash in-flow is high in banks due to demonetisation, it will create more job opportunities, and interest rates of housing sector are likely to come down.

CREDAI secretary Naveen Cardoza, S M Arshad, Sudheesh Karunakaran, Willam D'Souza and others were present.

Comment on this article

  • mahesh , mangalore

    Thu, Dec 1 2016

    prices in mangalore will to 10,000 per cents and flats will be available for less then 15 lakhs.

    DisAgree [2] Agree [5] Reply Report Abuse

  • Michael, Bangalore

    Thu, Dec 1 2016

    Land & Flat prices will come down heavily. Land Mafia should realise that they can't take it for granted for a long time. A middle class earning family can't afford to buy either a small piece of land or a one bedroom flat in Mangalore. If bought will end up paying loans till his lifetime. So prices should & must come down heavily. A good initiative by PM, thank him for taking up common man's woes.

    DisAgree [4] Agree [30] Reply Report Abuse

  • Jossey Saldanha, Mumbai

    Wed, Nov 30 2016

    What happens to all the land bought by Reddy, Yeddy, Ghadkary & Chaddy before 8th November ...

    DisAgree [6] Agree [27] Reply Report Abuse

  • RSRB, Kundapura / Singapore

    Thu, Dec 1 2016

    Jossey Saldanha, Mumbai

    Thanks to MODI
    Right?

    DisAgree [3] Agree [6] Reply Report Abuse

  • Alwyn, Mangalore

    Wed, Nov 30 2016

    Let us watch and see. It looks like, it is was new tactic by BJP and it's gang to protect and produce new way of BLACK MONEY for their gang.

    DisAgree [14] Agree [15] Reply Report Abuse

  • Alex, Mangalore

    Wed, Nov 30 2016

    Soon this myth will become truth.

    DisAgree [5] Agree [43] Reply Report Abuse

  • Allen, Mangaluru

    Wed, Nov 30 2016

    And everything mentioned as truth will become myth.

    DisAgree [3] Agree [30] Reply Report Abuse

  • Daniel, Mangalore

    Wed, Nov 30 2016

    NO Demand but still they will hold on.
    Like to see the real estate prices slashed down like Bank interest rates or even to worst low.
    This happens when all buy what is needed and not for fake investment.

    Shelter, education and healthcare is the basic need of the human being and shall be affordable to a common man. But all made a business which not reachable to common man.
    But people's greed signals increased demand and ultimately developers control the price.

    DisAgree Agree [38] Reply Report Abuse

  • francis lobo, mangalore

    Wed, Nov 30 2016

    Demonetisation has achieved the things which most of the government were trying to do but failed. Every government tried to bring in multi brand retail and close down the small shops and business. With digitization and credit /debit cards only the big malls and multi brand retailers can survive. The small businesses will close their shops.

    DisAgree [4] Agree [13] Reply Report Abuse

  • readerwriter007, pune

    Wed, Nov 30 2016

    Sometimes I feel it happened for good. These guys were taking up the land / real estate price to the sky. No control was there. Just like that, the pricing used to happen. Non-Mangaloreans or people from North India and all were stunned to hear the price of the flats and lands here at Mangalore. It was a big mafia which was controlling this. Now let them come to reality for a while. Let the real valuation start happen. It's good for everybody.

    DisAgree [3] Agree [70] Reply Report Abuse

  • Bollu, Mangalore

    Wed, Nov 30 2016

    Land sharks still want to control the property prices. But cashless society means either you reduce prices or wait for more years to sell your property.

    DisAgree [1] Agree [65] Reply Report Abuse

  • FLAVIAN DSOUZA, CHIK/BENGALURU

    Wed, Nov 30 2016

    We have seen 10 lak crore come in as deposits. The deposit holders need to be paid 4% interest at the minimum . RBI is refusing to pay this to banks and banks are not able to lend since these are deposits which can be withdrawn any moment!!!Who will pay the interest on these deposits??

    DisAgree [6] Agree [27] Reply Report Abuse

  • sid, mangalore

    Wed, Nov 30 2016

    looking forward to the land buying controls from the PM sri modi gi . There is more to come guys who are holding benami land

    DisAgree [14] Agree [32] Reply Report Abuse

  • Gangaram, Moodbidri

    Wed, Nov 30 2016

    as per reports BJP already brought thousand of acres land all over India. now land required only for cremation.

    DisAgree [17] Agree [48] Reply Report Abuse

  • Kusuma G Kumari GSV, Kodyadka

    Wed, Nov 30 2016

    Demonitisation is a BOLD move by our great PM Sri Modi Saheb I am sure under the leaderhship of Sri Modi India will shine and Indian economy will e the best Modiji You are my hero

    DisAgree [158] Agree [105] Reply Report Abuse

  • chandra, surathkal

    Wed, Nov 30 2016

    Hi Kusuma

    Please replace "Modi" by "Rahul Gandhi" if you want more agree than disagree

    DisAgree [42] Agree [89] Reply Report Abuse

  • Aivlis, Mangalore

    Wed, Nov 30 2016

    Demonetisation is a bold step undoubtedly, same as the surgical strike. See the after effects of both. We lost so many of our people in both these bold steps.

    DisAgree [19] Agree [75] Reply Report Abuse

  • Sampath, Mlore/ Blore

    Wed, Nov 30 2016

    Still people who called for the surgical strikes are unaffected. Living in their own dream world

    DisAgree [4] Agree [13] Reply Report Abuse

  • FRANCIS, Dubai

    Wed, Nov 30 2016

    Surgical strike on valuable human lives and on our own people...

    DisAgree [6] Agree [35] Reply Report Abuse

  • Jossey Saldanha, Mumbai

    Wed, Nov 30 2016

    Shooting ones own leg ...

    DisAgree [11] Agree [32] Reply Report Abuse

  • Praveen, Mangalore

    Wed, Nov 30 2016

    Now its looks like Sajjige Bajil economy

    DisAgree [10] Agree [55] Reply Report Abuse

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Title : Mangaluru: Myth that land prices will fall by 50% due to to demonetisation: CREDAI


 
 
 
 

 
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