Real Estate and Demonetization: A Comparative Study

All of our nation's key industries have been significantly impacted by demonetization. No firm, no matter how big or how established, in any industry was immune to the effects of the Modi government's decision to demonetize on November 8th. Despite the fact that 2016 is about to come to a close, its influence on various industries continues, with real estate being one of them.

The impacts of demonetization on real estate were the subject of a good number of inquiries. Others saw an increase in home prices in the near future, while some expected a decline in prices. Now let's examine how demonetization has impacted the real estate market in the nation.

The effects of demonetization on the real estate market were evident right away. The market experienced reverberations after the announcement and has shown gradual growth over the last month. Many developers in the real estate industry are currently facing difficulties due to poor sales, issues with high liquidity, and a large number of unsold homes.

Many real estate experts believe that demonetization will have a significant impact on the sector in the coming year, but it is expected to stabilize and improve in the long run. A report released by the Ministry of Finance in 2012 stated that the real estate industry contributes 11% to the total GDP of our country. According to a recent report, the black economy in our country amounts to more than Rs. 30 lakh crore or 20% of the country's GDP. If we consider the assessment from the white paper, the real estate sector is responsible for 50% of this black money. Some developers in the industry argue that demonetization was a wrong move because it has left the entire industry uncertain about its future.

The Demonetization Disruption: Impact on Real Estate

Since most transactions are made in cash and there is a significant amount of illicit money involved, the real estate industry will continue to be the one most negatively impacted by demonetization. However, the majority of these transactions take place in the secondary sales market, where cash is used for the majority of transactions. In other words, the market for resale homes will undoubtedly suffer greatly.

Due to the fact that there are also many cash transactions in the luxury residential real estate divisions, experts expect that these segments will be significantly impacted. In this area, only a very tiny percentage of transactions take place through authorized banking channels. As most sellers want to sell their houses so they may generate liquidity, the demonetization will also cause a 20%–30% decline in the value of luxury properties. More alternatives are thus given to homebuyers as a result.

A number of investors who have made investments using unreported funds will be removed from the system as black money is withdrawn from the market, according to experts, and this will bring about the long-awaited correction in the real estate market.

The Unbothered Real Estate Market: Surviving Obstacles with Strength

It won't have as much of an impact on the core real estate market, which includes the initiatives of reputable developers and realtors. This is because buyers in these projects frequently choose mortgage loans to pay for their ideal residences, and since all transactions in these projects take place via legitimate financial channels. Consequently, the impact on sales for this category won't be significant.

Some developments in lower-tier cities where cash is still the predominant form of payment for real estate might have a negligible impact. The impact, if there is one, would, in the opinion of experts, pass quickly.

The Overall Influence and Effect

The Indian real estate market has seen some encouraging improvements that we have all seen. New laws like the RERA (Real Estate Regulation and Development Act of 2016) and the Benami Transactions Act may help the industry get clean and become more transparent in the near future. In turn, this will shield the purchasers from holding up construction and handover.

The decision to demonetize was a vital one that would undoubtedly cause a tremendous upheaval wherever dark money plays a significant role. The Indian real estate market will get even stronger over the next years and be able to expand further.

News Source - Impact of Demonetization on Real Estate