Home loans post demonetization: A menace or a relief?

India’s business sector has been tremendously affected by the recent demonetization of higher currency notes by the present government to fight black money and corruption. The real estate sector in the country, which often involves a lot of black money and cash transactions, is witnessing substantial disturbance and turbulence after the demonetization move. It has become challenging for the prospective buyers to arrange the required money to buy flats, let alone their dream homes. As a result, the builders and developers are also facing problems as they are failing to sell their flats and buildings to potential buyers. The luxury and expensive residential real estate projects have witnessed a major impact because these conventionally involve a lot of cash transactions and home loan. Overall, the whole sector, which includes both developers as well as buyers, is adversely affected due to a shortage of money, poor sales rate and drastic fall in the prices of properties. But it is believed that the turmoil will settle down in a short period.

However, the recent demonetization is a major step towards increased transparency in the real estate sector according to many real estate developers and experts. It will make Indian real estate market more attractive to global investors and property buyers. The affordable housing segment may not witness any major impact. It is believed by many that with the fall in the prices of flats, the demand in housing segment is revived. The major advantage of demonetization is that the prices of luxury properties have dipped by as much as 25 percent to 30 percent as the developers are trying to sell off their ready to move flats and buildings at a lower rate to attract more buyers which will help them to generate money. This further implies that luxury home buyers suddenly have much wider options to choose from.

The easing of property prices post demonetization proved to be beneficial for lenders and housing finance companies as the average size of the home loan is likely to increase. This is majorly because the cash component proportion in all property deals is expected to be dramatically lowered and the value will keep increasing in a proportionate manner as well. Banks expect a drop in demand for housing loans in the short term. However, the property prices are expected to come down leading to a rise in demand for properties which in turn will draw more home buyers. The longer time to liquidate the value of the property would definitely add to the woes of financiers in this segment.

In most cases, it is found that the home buyers take the help of banks or housing finance companies for taking loans, termed as home loans to buy homes of their choices. The home loans interest rate is adjustable or fixed with specific payment terms. Home loans also have similarity with mortgage loans. One of the major obstacles in buying a dream home is the increased prices of real estate properties in the recent times. The home buyer may not have enough funds to afford the purchase or even to make the down payment for his desired home. In such cases, various premium banks come at the rescue. They offer an appropriate home loan to suit the customers’ or the borrowers’ needs irrespective of whether the person is a first-time home buyer, investing in his dream home or buying a second one. Most of the banks allow the buyers and its valued customers to take a loan   to fulfill his desire of buying a home at a minimum home loan interest rate.

Some of the prominent features of Home Loan offered by various banks in general are:

• One can purchase a ready as well as under construction property from a bank approved developers.
• The home loan interest rate is attractive and suitable to the needs of the borrowers.
• Easy home loan up to Rs. 5 Cr so that a prospective buyer can easily afford to buy his dream home.
• Flexible payment tenure of the home loan for up to 20 years.
• Home loans up to 80% of the property value.
• Flexibility to pay only the interest of the home loan during the construction period of the house.
• There is also a provision of home loan for NRIs in select countries.

Thus, it may be concluded that demonetization has brought a sigh of relief to the prospective home buyers who are now enjoying several advantages such as lower prices of properties, a variety of options to choose from and home loan facilities from banks and housing finance companies, providing its customers with lucrative offers, benefits, smart features and attractive home loan interest rate. However, this demonetization could not bring a good note among several developers who are struggling to sell their flats while earning a marginal profit.