Demonetization of Money In India affects the Real Estate

DEMONETIZATION ANNOUNCEMENT ON REAL ESTATE

Real Estate is considered as the most effective method to park black money. With the recent announcement of demonetization of higher currency notes, the real estate industry has really shaken hard. Though, it is difficult to measure the immediate effects but its impact has already come in limelight. Already, the real estate industry was into correction mode where investors were backing out and actual end users were coming up to buy residential projects. But now, all the resale deals have severe effect on materialization as buyers are denying accepting cash.

In India, real estate in highly unorganized and to counter this Government has taken several initiative in forming key reforms in this sector like RERA (Real Estate Regulation Act), GST, Benami Transactions (Prohibition) Amendment Act, 2016, REITs. These reforms motive is to bring high transparency and steady growth. Even FDI reform’s has been amended to have transparency and bring new players. 

Now with demonetization, a lot of high value deals will be affected. Traditionally, sale and purchase of properties are involved with black money and cash transactions because of the difference between circle rate and market rate. Obviously, resale of properties will be cumbersome task and will be hit hard. It was highly needed to stop black money component in real estate to make it more organized and transparent. It is inevitable that there will be huge short term pain but in longer run this decision will prove to be highly appreciable by all classes.

High Value properties will see a major fall in resale as payments were made in more of cash component. So, we can expect a 30-40% fall in prices for such properties costing more than 2cr. It means that buyers will have access to luxury living with much wider options available in market. With demonetization of high currency, many investors with undeclared money investing in real estate and were raising prices to make it white will be eliminated and thus will bring huge correction values.

Who will not be affected?

The New Launches or under-construction projects will be less affected. Primary buyers, previously also, had to book a property in cheque and can opt for home loans or other financial routes. Though, supply is already higher than the demand in major cities of India but still it will have less negative impact on new projects. Must mention that the sentiments and behavior will be changed after this decision and one will be very skeptical to buy new property for investment. So, now end-users will have huge choice at lesser prices to buy property at their preferred location. Modi Government next step can be on real estate buying capacity of individuals for which PM has already given signals in his Goa visit. So, investors would want to liquidate their properties. This decision will benefit the End-users to great extent that doesn’t have any cash and buys property through finance.      

The exercise of demonetization was needed from several years but current Govt took the initiative. It’s not only real estate sector but various others sectors are shaken up. In long run, real estate sector will be disease free and will become much healthier, stronger. There is no need to panic or to worry for those who have bought or sold properties legally. Those who have bought properties over their buying capacity or bought in another’s name and paid from their account would worry a lot.     

Overall a huge bold decision to demonetize higher currency will make real estate much organized and will transform into a much corporatized, transparent sector with long term sustainable growth.

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