“Over 5 lakh crore deposited with banks are not going to be kept idle. Banks will have to extend loans for all sorts of economic enterprise - for which they will have to bring down their interest rates.”
“All rates will fall. The bank has seen huge inflow of deposits but demand for credit has slowed down.”
“We expect banks to reduce deposit rates by ~1.25% over the next six months.”
“Demonetization good for growth. Impact on property market exaggerated. I don’t see any possibility of prices coming down much.”
“Also with higher tax to GDP ratio, the government may also get enough headroom to reduce the income tax rates”
When banks have lots of cash, they reduce interest rates to attract more customers for loans. Interest rates are expected to come down by 1% - 1.5% in next 12 months. This means that EMI will go down by almost 12% from Rs.856 (for 1 lakh @ 9.25% for a 25 year loan) to Rs.755 (for 1 lakh @ 7.75% for a 25 year loan), leading to much higher demand for real estate.
Once the current round of demonetization is over, it is a high risk keeping wealth in notes. Some markets like Mumbai & Bangalore where >70% of transactions (by volume) are with established players and cash is largely absent, investing in such markets is the safest investment.
Secondary (resale) transactions will reduce and demand will move to primary (directly sold by developer) market, since secondary (resale) transactions tend to have involvement of cash.