Demonetisation: It’s a buyer’s market, step in confidently and look for bargains

The volume of property enquiries and transactions across the Indian market has dropped dramatically ever since Prime Minister Narendra Modi announced demonetisation of the Rs 500 and 1000 notes. This accounts for roughly 87% of Indian currency.

Broker Ajay Baijal lamented yesterday that he did not receive a single sales call across the weekend in Gurgaon. On the other hand, Yasser Rahman, Secretary, Chennai Real Estate Agents Association, said that there was not much change in sales volumes in the city which was already facing a slowdown. Developers in Hyderabad maintain that its business as usual and the property prices have already fallen to an extent that they will not be impacted by the demonetisation.

So, what should you do if you had intended to buy a house? The end user and serious consumer has never had it so good. After two years of slowdown, the price of property was already very close to 2012 values, indexed to inflation. The number of buyers have shrunk as those who paid in cash have been edged out of the market. The number of sellers in the secondary market may have shrunk a little but many sellers do not want to wait it out in the market. There is a vast amount of new properties available in the growth corridors along highways and expressways in every city.

The Prime Minister and Finance Minister have said that prices of property would fall. Let’s examine why. At least 50% or more of transactions in markets like NCR were dealt in cash in the secondary market. Finance Minister Arun Jaitley said at the India Economic Conclave recently, “For the past 70 years, the parallel economy in cash was normal. However, with demonetisation, there will be a new normal in India and that will be just formal finance.”

For a country and a market that is unused to this new normal, it will take time for this vacuum to be filled. No cash could result in fewer buyers which also means values dropping by about 10-15% to accommodate the new situation. This will take at least six months to happen. However, the rate of transactions is expected to drop.

If you are a serious end user, turn this uncertainty to your advantage. Secondary market properties are either in well-lived in areas with adequate social and transport infrastructure or they are near completed properties in new complexes that are being sold by investors. Neither category can forget that the market has a surplus of ready-to-move-in properties. Many cities have inventory overhang of upto 36 months. That should allow serious end users to jump in and start negotiating the best prices. For sellers in the secondary market, vast volumes of property in the primary market is a big threat. With the absence of cash in the economy, their only option is a quick sell now to interested users. Sale price has to be close to guideline values to avoid the taxman’s eye.

In primary properties from developers, ask for meaningful discounts like fittings and fixtures and maybe a drop on Preferred Location Charges (PLC). These help in your purchase value.

If you are a seller, be rational. Guideline values can be a good way to assess your sale price. Sell to those with formal finance from banks. Bank assessments will tell you the current estimated value of the property. That should also help you along. Consumer sentiment is expected to pick up after the first fear and panic settles down. However, by that time the number of developers completing their property will also rise. Today’s consumers prefer new secure complexes packed with features and amenities and you may find it difficult to sell.

So when a serious buyer comes your way, look for the best price you can extract and go for the sell.

(The article is authored by Jayashree Kurup, Head, Editorial and Advice, Magicbricks. You can reach out to her at jayashree.kurup@timesgroup.com and tweet: @jkurup)