Demonetization - Frequently Asked Questions

I have been hearing that Pune real estate prices will fall due to demonetization. Is that true? Will home prices come down? No, because:

       I.         the Pune property market primarily is driven by home loans and has no cash component in its transactions. There is no chance of prices coming down in the Pune property market as a result of demonetization. Moreover, property prices have grown by just 4.3% (Y o Y) in Pune in the last 4 years – much lesser than the rate of inflation (6% +) & are closer to circle rates. Is there scope for further drop? No.

  II.    The home loan interest rates likely to reduce further. With inflation coming down and demonetization increasing the money supply to banks, the interest rates are likely to reduce. This will have a positive impact on the demand for homes. With lower supplies and higher demand, the prices are bound to go up.

   III.         Developers in Pune have acquired lands at higher costs, input costs of construction have gone up in the last few years. With RERA around the corner, builders will comply & cost of compliance will squeeze margins further. Also, the supply will fall after RERA’s introduction, leading to rise in prices.

   IV.         Over the years, the ready reckoner value of properties in Pune has been regularly revised and now the government valuations of properties are very close or in cases even more than the market price e.g. in Moshi & Chikli. So, even if demonetization reduces the demand for real estate, transactions below ready reckoner value does not get registered by the authorities. This, again, will ensure that prices remain high in Pune.

     V.         It is more likely that cost of under construction residential unit will increase post GST implementation. Giving further rise to the prices.

   VI.         Today, with significant efforts taken by the Govt., institutional funds dominate funding real estate sector in the form of lending developers as well as housing finance for home purchasers. It creates more transparency and no latent returns, impacting no price drops as returns to the lenders are fix and transparent.

So, is now a good time to buy a property in Pune?

A big resounding YES! Why? Especially if you are going to opt for a home loan. With home loan rates expected to come down very soon, EMIs will go down considerably making homes cheaper or can get you a bigger home @ same price. It’s now up to smart buyers to make use of the opportunity.  The media channels claiming price drop majorly in secondary market, can not hold the prices in Pune’s primary market to go up.