business-4-1246292-640x480Post demonetization of Rs. 500 & Rs. 1000 currency notes, markets are abuzz with expectations of property prices going down by atleast 15 to 20% from current rates.

Contrary to that belief, I believe that property prices are going to go up from here unless there is a panic selling from people who hold properties now.

I have my following points on why prices may go up.

  1. Reduction in cash component: This means it is easier for people with legitimate income to buy properties. In a black money: white money scenario, these people were in lots of trouble arranging for the cash part of their purchase and hence were not considering buying a property. Let me explain: Imagine you were to buy a property worth Rs. 50 lacs. You had Rs. 10 lacs from your income sources as savings and banks were ready to give you Rs. 40 lacs loan. Now that the seller wanted Rs. 25 lacs in cash and banks could lend just Rs. 20 lacs for the white transaction of Rs. 25 lacs, you were not in a position to buy a Rs. 50 lac property and were looking for a property of Rs. 20 – 25 lacs value.
    • This meant, there were less number of buyers who had legal income in the real estate market. With this move, there are more buyers of this type. Means more DEMAND
    • Imagine someone had purchased a property an year back at Rs. 50 lacs. Let us assume that he paid Rs. 25 lacs black money and Rs. 25 lacs through legitimate sources. Now let us say property rates remain same and he wants to sell. Now that he has to sell at Rs. 50 lacs which is 100% coming through declared sources to his bank account, for all IT purposes he is making a gain of Rs. 25 lacs. This will attract a tax of Rs. 5.25 lacs+ approx. This means the seller is actually making a loss. In order to cover losses either he has to stop his selling process or increase the price. MEANS LESS SUPPLY
  2. Improvement in lending: Banks are going to get more money. Means they can lend more. Means competition to lend. Means lesser interest rates.
    • This meant, a person can take more loan for the same EMI
    • More number of people getting eligible to buy properties, properties of higher value. Means MORE DEMAND
  3. Reduction in stamp duty? States may consider to reduce stamp duty rates as transactions are getting recorded at a higher value. Means people who want property as investment will have a lesser cost per transaction. MORE DEMAND

Only the negative sentiments are the factor which may reduce demand. All other factors look positive at this time.

Plan to buy a property now with a floating rate of interest housing loan. In all likelihood you are going to be a happy person in next 2-5 years.