In the evening of November 8, 2016, the Prime Minister of India declared a path breaking policy decision to demonetise Rs 500 and Rs 1,000 currency notes.
The declaration shocked the nation and soon everybody began to try and understand the implications of this step.
As time passed, myriad opinions emerged about the short, medium and long-term effects of the policy and yet complete clarity still eludes citizens about the various outcomes.
A major intent of the demonetisation drive is to extinguish currency notes held as unaccounted cash, in other words black money. It is expected that the prices of assets, which involve black money in transactions, will come down substantially.
There is almost a unanimous agreement among the people that the most likely asset which is going to be much cheaper is real estate.
Demonetisation is likely to impact different sectors of the economy in various ways. Real estate sector also cannot escape the effect of demonetisation.
Real estate sector comprises primary market, residential and commercial, the secondary market for resale properties and the market for land. The changed scenario will impact these segments somewhat differently.
To understand whether it is the right time to invest in property in Kolkata now after demonetisation, we must take into account certain factors.
Kolkata Property Market Did Not Crash Even After the 2008 Financial Crisis
We all remember the vicious asset value erosion during and after the Great Recession of 2008. The stock market index tumbled by more than 50% from its high point, and almost all asset classes saw similar value destruction. Gold, of course, is considered the safe haven asset and during any financial crisis people throng to buy gold pushing its price up. The stock market did not crash like in 2008 even 3 weeks after the announcement of demonetisation.
We had also anticipated moderation in property demand and softening of prices.
Some people, who were considering investing in Kolkata properties, postponed their purchase, thinking they would be able to buy them at far lower prices.
But that did not happen!
Kolkata property market proved to be far more resilient than was estimated.
Post-2009, apartment price per sq. ft. started rising in Kolkata, although never spiked too high.
The Dynamics of Kolkata Property Market is Different
Kolkata property market consists of the predominance of residential units, a majority of them relatively affordable compared to other large cities in India.
There are also some premium property offerings as well as commercial spaces.
There is also a vibrant resale market.
We must understand that there is a scarcity of land for development in the city proper, while buyers’ preference does not go very far in the adjoining areas. Kolkata is also not seeing the rapid expansion like National Capital Region or Mumbai.
The property buyers in Kolkata primarily buy apartments for living in them or getting a rental income. A vast majority buy with the help of home loans. For a majority of customers who buy apartments in Kolkata, affordability is always a major parameter for selecting the right project.
These factors ensured there was no runaway property price rise in Kolkata.
Kolkata is Witnessing a Number of Infrastructure Development Projects
In the last few years, Kolkata has been seeing a number of infrastructure development projects. There is a visible improvement in the road network, power supply is highly reliable, roads are much cleaner, a number of new age shopping malls and hangouts have come up, new Metro and BRTS connectivity is underway, traffic situation is far better, and the city is perceived to be much safer than many other Indian cities.
Civic amenities and the comfort of living in Kolkata has far improved in recent years.
These are also creating quite a few growth spots for property investment in Kolkata.
Property prices have inched up because of these positive developments and increased the interest of end-users and investors to buy property in Kolkata.
The steady price rise is set to continue as the infrastructure projects proceed towards completion.
Still, the property prices are not exorbitant and definitely not like a bubble if you consider other cities.
Kolkata Property Market is Not Basically Investor Driven
While there is some speculative interest in Kolkata real estate projects, but the contribution of speculation to real estate prices is not very high.
Even the resale market transactions happen mostly between end-users.
The contribution of huge unaccounted cash is absent in Kolkata unlike Delhi or Mumbai markets. Resale property and land prices in such markets are expected to moderate to realistic levels.
Moreover, the advent of the Real Estate Regulation Act (RERA) and the imposition of Goods and Services Tax in lieu of earlier taxes will moderately increase the cost of property.
The cost of compliance is high to meet the RERA conditions and these will be passed on to the consumers. Similarly, GST incidence is also likely to increase tax liability on property transactions, though augmenting transparency.
It is Favourable to Buy an Apartment in Kolkata Now
Demonetisation is creating a favourable condition for the buyers to invest in property in Kolkata and if you are considering buying an apartment, you must start looking at options now.
The monetary steps by the RBI have created an environment of excess liquidity in the banking system and this has started to bring about a reduction in home loan rates and this trend is expected to continue. Indications to that effect are already available as the banks are rushing to bring down deposit rates.
Demonetisation is also likely to cool off inflation. On the one hand purchasing power is reduced which reduces demand, on the other hand, higher production levels of busy season ensures there is ample supply of goods and services.
This will help the RBI to reduce interest rates further and home buyers will benefit hugely with that move.
Demonetisation is also likely to keep the property prices under check from speculators and help genuine end-users. The real estate fraternity is also adopting better consumer protection policies in the spirit of the RERA.
So if you are considering buying an apartment in Kolkata now, go ahead and start selecting available options.