The country has witnessed its third demonetization exercise with far-reaching effect on every sector of the economy. Real estate is one of the globally recognised sectors of the economy. It accounts for 11% of GDP out of which 5-6% is attributable to the housing sector. In terms of FDI, it is the 4th largest sector of the economy. The sector in 2020 is expected to be worth about 180 billion US dollars. With the country on demonetization, real estate is the most talked sector that has felt the heat. If sources are to be believed almost 30% of the transactions in the real estate sector are completed through unaccounted money. Cash dealings via black money that are a major part of the real estate transactions are sure to get a setback. Here, this article will discuss what, how and who will be affected by the move.
What will change?
The residential property is considered to be conspicuous for the utilisation of black money. Most of the deals involve a mandatory large chunk of payment in cash by buyers and sellers as a component of payment. This will not be the case anymore.
With the demonetization, the advantage is taken under ‘Urban Land Ceiling Act’ and tax holidays in which properties were bought in bulk and then sold at prices which led to property inflation will not occur. The ‘superficial high price’ problem will also be in control. Housing will be more accessible to small and medium income group people.
Also, people who use to skip registration record will not be able to do so as money can be routed in only by legitimate ways now.
How will the sector be benefited?
However, demonetization is sure to help those who had long dreamt of owning their own house as the sector has witnessed a fall in prices. The government has further thought of decreasing the stamp duty in a move to encourage people to spend in the sector. Interest rates are also falling making loans more accessible.
On the face of it the effect of demonetization may seem grave but the problem is not that gloomy. In short term, it may involve troubles but eventually, it would infuse a lot of transparency and would help a lot in establishing accountability in this sector. Cash dealings will be much more organized now.
The luxury and high-end sections of residential real estate will also be affected and the prices might fall by 25-30% as of liquidity crunch after the demonetization. However, this directly benefits to home buyers of luxury segments. Their options have increased. Although investment activities routed through unaccounted money will be cleared but this will also aid to a better-organized sector.
Nonetheless, the demonetization move is not going to affect key projects which are taken by reputed and credible developers of tier 1 city because funds for these houses are financed by home loans. These transactions are performed legally. Therefore, the likelihood of a decline in sales is very less. There might be an effect on tier 2 and 3 cities where transactions are still performed my means of hard cash. But that will also ease out in a short period of time.
In a move to benefit the entire economy, some may actually suffer. Those who have acquired property from their hard-earned money thinking of appreciation in the price of property have been hit badly. For few years their property prices might even suffer, but as the sector becomes more organized these problems will be resolved.
The efforts of the Indian government in the last couple of years to organize and make real estate sector have been commendable. A series of reforms have been done to develop real estate which has been attracting a lot of foreign investment. Some of the prominent reforms in this sector are Real Estate Regulation Act (RERA), Real Estate Investment Trust (REIT), Benami Transactions (Prohibition) Amendment Act, 2016, Goods and Service Tax (GST). These efforts will bring an increase in FDI also. Donald Trump, the American president has already invested in five major cities of India.
These small transformations in the economy are sure to change the face of the real-estate sector by inducing better transparency and accountability in the system and will yield a more competent and corporatized sector.
