Housing sales have come to a standstill since November 9, 2016. This is the unprecedented unanimous consensus amongst developers, suppliers, monitoring agencies and real estate consultants who report unsold inventory numbers which developers never agree with. It is hardly surprising when the average Joe is busy trying to withdraw money for the purposes of eating food, drinking water, commuting and attempting to purchase the very basics of a reasonable existence, that surprise, surprise – purchasing a new home is not really a priority!
Expensive marketing campaigns are aimed at not only generating customer interest but its logical progression of creating walk in customers at the project site or marketing office. There are no walk in's – just noticeable walk by's of stray cats, dogs and if you look hard enough, the occasional rat. Marketing managers suddenly have a lot of time on their hands…actually that's when they aren't waiting at long queues at banks and ATM's to gather sufficient funds to enable them to travel to and back from their workplaces. Developers marketing campaigns are not aimed at cats and other happy animals, but at Homo sapiens and hence have come to naught.
With cash flow projections of existing projects going for a Chris Gayle type six, there is going to be even more stress in a sector that has been struggling for the last 3 years with already sluggish sales and an increasing loss of faith from the customer. With the banking sector facing growing NPA's from the real estate sector, there might be a some hope of a farmer sector type extention in loan repayments for the already rescheduled loan repayment schedules of several developers. But given the perception of the real estate sector, this is as likely to happen as Sachin coming out of retirement and scoring his first treble hundred at Lords in 2020. The GDP growth will surely contract and inflation would have a seizure due to severe demand constrains due to a lack of money in the hands of the consumers. But let us not worry, because Acche din aayenge boss !
But let us not be alarmist because the tolerance levels of the average Joe is like Arjun's powers of concentration – seemingly boundless. We are already used to waiting in long lines for everything – "aap Qatar Mei hein" – be it for water in villages, to go to the bathroom in Chawls and slums, for phone connections in the good old days, for trains, buses, hospitals, for a Bajaj Chetak. In the medium term, As long as the Government gets this endeavour right and stops the inconvenience and pain to the common Joe, then we are onto a revolution in our Country.
Let us explore the consequences:
At the time of writing this article, approx. 6 lac Crores of money have been deposited in banks in Rs 500 and Rs 1,000 notes out of a total circulation is approx 14 lac Crores of money in these denominations. The estimate is that this endeavor will garner approx 12 lac Crores of money in circulation and hence approx 2 lac Crores of money will not be deposited back consequently leaving the present Central Govt with a paper profit of the balance money of approx 2 lac Crores which they will simply print and inject into public spending in projects such as building great quality infrastructure and possibly also recapitalizing the banks to some degree.
Additionally the banks would be flushed with funds from all these massive unprecedented deposits and hence would have suddenly stronger balance sheets, surplus liquidity and hence would be forced to lend money to the market. With excess supply of money, interest rates would come down radically by possibly 200-300 basis points. Home loan rates would come down from 9% to 7% or possibly even lower. Inflation would be squeezed in the short and medium term and hence real interest rates and GSec rates would also drop radically by similar levels. Given the injection of money into infrastructure by the Govt and the increased levels of liquidity in the banking system, the GDP would grow at very healthy rates and the real GDP growth ( GDP growth minus inflation) would probably be at historical highs and sustainably so.
Real estate is a derived demand and it depends on GDP growth and IIP growth, additionally home loan rates and the liquidity in the market place. Structurally of all of the above are in good shape, which seems to be the logical conclusion of this endeavour, then the real estate sector will witness a long sustained boom.
Let us spare a thought for Mr. Murphy and his law, that things will go wrong when they can go wrong. Mr Murphy was surely Indian in spirit if not blood. Hence let us recalibrate expectations based on Mr Murphy and state that the effects of demonetization will be available to Mr. Joe and hence the real estate sector in the next 12-18 months and not by March 2017.
Acche din aane wale hain ! Aap qatar mein hein
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