While the Indian government may be hopeful of reviving the economy by lowering the lending cost, the middle class, majority of whom already bought a house, may not be happy with the idea of the property prices coming down in the wake of demonetisation.

People, who have invested in property, have been left high and dry with the housing prices falling up to 30pc. Realty experts expect a further fall in property prices in the secondary market.

If you bought a house for 8m rupees ($116,531) in 2010, the back of the envelope calculation shows its market value would now be around 5.5m rupees. Having paid a large portion of interest component, it won’t make much difference if lending rates come down.

People, who have invested in property, have been left high and dry with the housing prices falling

It’s a catch 22 situation for Amit Verma who booked a house in Greater Noida four years ago and is yet to get a delivery. “Now I can’t sell it for the lack of buyers. But how long will I continue to pay EMIs for something whose market value has fallen,” says Verma, a media professional.

Property consulting firm JLL’s country head Anuj Puri says the property deals will freeze for now as there are no sellers and therefore no buyers in the market. People should wait, he advises, adding there is no way to have an idea of what the impact of demonetisation on the property rates will be.

“People who have bought property are certainly feeling poor even though it may be notional. Sales have frozen. No one will like to drop the price of her property. The situation in the secondary market may not change for next two quarters,” says Puri.

Whether for end use or investment, most people bought properties when the prices were at peak, believing the property to be the best investment which would never go down in value. Now with the property prices coming down, investors have no choice but to wait. The market sentiment is currently at its low and it may take at least one year to improve, experts feel.

“Lower lending rates won’t make as much difference as consumer sentiment would. Look at the United States where the interest rates are almost zero. Even then, the consumer sentiments haven’t improved and buying is yet to pick up,” noted economist Prof Arun Kumar says, adding that once a slowdown starts it takes at least a couple of years to revive the economy.

Meanwhile, no deals are likely to happen in property market for now, says Prof Kumar, as consumers as well as builders adopt wait-and-watch approach.

If you want to buy directly from the builder, “it’s not just interest rates, the buyers are waiting for the property prices to fall substantially,” says Sharad Shrivastava, CMD of realty consulting firm Mudra Realty, adding that he doesn’t immediately see builders slashing prices given the high cost of loans to be serviced by them.

According to analysts, the primary market may pick up once GDP growth bounces back and interest rates come down. Another factor that will play a key role in improving the consumer sentiment will be the passage of the consumer friendly Real Estate Regulatory bill that proposes to put to an end the practice of builders launching projects without required approvals.

— The Statesman/ANN

Published in Dawn, Business & Finance weekly, December 5th, 2016