Effects of Demonetization on Home Loans and Lending Activity of Banks
The announcement regarding demonetization of 500 and 1000 rupee notes is a welcome initiative by most people in India, with the exception of a little inconvenience amongst masses, which is also temporary. There are multifaceted benefits of this action, especially for people who are planning to invest in residential properties. While this move eliminates black money from the real estate market, it also facilitates a drop in the home loan interest rates.
The effect the demonetization on bank interest rates for home loans is going to be huge. Since people are depositing their money, both black and white, in exchange of new currency notes in a number of banks. This process is sure to give a boost to the deposits in banks by a large margin, allowing banks to have more Cash to Reserve ratio. More deposits in the banks give a boost to their lending activities across the nation. Therefore, home loans are expected to become easily available and the interest rates will also lessen. This will subsequently make getting home loans at far lower rates very convenient all the while increasing the supply of money and further generating inflation. However, it will happen gradually taking a lot of time.
Home loans are directly linked to the impact of demonetization on real estate sector. Prices of residential properties are going to be impacted to see a huge downfall. Due to the decline in property pricing, people planning to apply for home loans for buying property will be ever-more encouraged to purchase their dream homes. So, the number of houses bought through home loans is going to go up in coming days. However, for a little while, there will be less demand for home loans because of the cash crunch. But this problem will settle gradually as the property prices come down.
With people being able to get home loans easily and at lower rates of interest, a large number of people will see this as an opportunity to finally purchase their dream homes. Another aspect of demonetization is that more and more people are now turning to online monetary transactions. A lot of people are discovering the power of digital and how they can do so much using their phones and computers including applying for home loans online.
