Impact Of Ban On Higher Denomination Notes On The Real Estate India

The government’s bold and courageous decision of scraping the Rs 500 and Rs 1000 currency notes is going to affect the real estate industry in India but for good. Heartily welcomed by the real estate sector, this move will help keep a check on corruption and black money movement thus making the entire system more reliable and transparent. It will help in making the Indian property market more attractive for the global investors.

This tremendous step is anticipated to have positive consequences on the real estate India. Let’s have a look at how:

1) In the coming years, the weed of unaccounted cash flowing in the realty system shall be completely eliminated. The investors and lenders will feel much at ease since all the cash transactions would be taking place in white money. Once considered as a dominant physical instrument for black money hoarding, the real estate sector in India will now be clean and clear.

2) Since in the budget housing sector, majority of the buyers avail home loan facilities for up to 80-90% of the property price, the cash transactions are minimal. Primarily being routed through bank borrowings, there will not be a major impact on affordable housing demand.

3) With an increased clarity coming up in the real estate sector, institutional funding to builders is expected to see some softening which otherwise held a high risk weightage.

4) Listed companies and organized developers will not be at a loss since they have always been compliant and buying land via legal banking mode. Most of the property projects in the primary sector disclosed their housing units and so the developers will not take a major risk of selling few of them in white and the rest in black. Since large and reputed developers do not deal in major hard cash, so they are unlikely to get a hit from the same.

5) The secondary market, mainly the unorganized builders and resale property market, will feel the pinch since both of them deal in maximum cash transactions. They might remain subdued for a little time and will slowly and gradually lead to a drop in the property prices.

6) Land buying is considered as a popular means of parking idle and unaccounted cash. But with the initiative of demonetization, the land prices are expected to fall down considerably. This situation will ultimately be beneficial for the end user and potential home buyers and improve the sales volume addressing the affordability factor which this industry had been facing since long.

7) The reduction in housing prices will gradually lead to the revival of demand in the slow moving residential real estate. Welcomed by many big brand realty players, this step will lead to institutionalization of real estate in the country. Also, it has been referred to as signs of a maturing economy.

8) Last but not the least, this initiative to control the corruption and flow of black money in the market will increase the reliability, credibility and transparency in the real estate India, at a time when the implementation of Real Estate Regulatory Authority (RERA) is expected to bring increased accountability in the industry.

However, this measure towards eradicating bribery and corruption in the sector will lead to delayed approvals as most of the authorities are in a habit of accepting hard cash in order to give fast approvals or speed up the process. Land developers who hold sizeable land environs will also suffer problems in selling off the property and will have to bear losses due to the dampened market valuations.

Thus, referred to as Modi’s biggest ‘Surgical Strike’, this scraping off will bring with it more positive and far reaching effects on the industry as a whole.