The Real Estate Crisis and Its Domino Effect on the Indian Economy...

Wed, 14 Dec Pre-Open

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The real estate sector turned out to be one of the biggest losers of the demonetisation drive. The reason? The sector is largely cash driven and is one of the easy way to park the unaccounted money.

But this isn't the end of the real estate disaster. Other recent developments have coupled with demonetization to make things even worse.

For one thing, the Real Estate Regulation and Development Act, 2016, or Rera, is kicking in. While good for the end consumer, this act will mean more bureaucracy for the real estate companies to deal with.

Apart from this, the recent decision of the Reserve Bank of India (RBI) not to cut interest rates have hurt most real estate companies. Not to mention that many of the real estate companies are already reeling from a bad debt crisis.

So it's no denying that real estate in India is heading south - at least in the short term.

That said, this southwards effect will not only be limited to the real estate sector. The troubles here could have wider implications, affecting other sectors as well.

As Richa Agarwal wrote in a recent edition of The 5 Minute WrapUp... 'The banking and real estate sector crisis could lead to a domino effect that topples other sectors...and ultimately, the economy.'

The troubles can already be felt as real estate companies go on cost-cutting sprees to save cash. Most are looking to cut down salaries and planning lay-offs. As an article in Business Standard states, realtors are looking at cutting down on everything, from salaries and marketing expenses, to the number of jobs in their companies.

The above scenario epitomises the sorry state of real estate amid a tight liquid scenario in the wake of demonetisation.

And if things remain as they are today, the above play could also pose a threat for the jobs sector in India.

So, the months ahead could be times of chaos and uncertainty for the real estate sector. That said, the correction in prices of real estate stocks could also offer some bargain buying opportunities for investors.

In fact, the ValuePro team just recommended a stock from the real estate sector. And considering how different this company and its management are from typical real estate businesses, the team believes even Buffett would consider buying this stock.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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