When History takes a turn, there is plenty you can expect. India seems to be living in this kind of a phase for the past ten days. The wave of demonetisation that swept across the country on November 8 has brought related changes in various areas of the economy. Besides the fact that the move is expected to flush out the black money in the economy, it is also being projected as a step towards a – dirt free – real estate sector. Nobody can turn a blind eye to the fact that most of the transactions in the property market are still carried out with unaccounted money.
Everyone realizes and acknowledges that the initial reaction in the market would be a severe hit to the sector, which is already facing a recession. It has been said that initially, it is the resale of property that will take a big hit. As will the high-end transactions where there could be huge cash transactions. The primary market – where builders with a good reputation and credibility undertake projects – will probably be less affected because transactions here are undertaken largely through legal means and loans taken. On the whole, it is hoped and expected that in the medium to long term, a greater transparency will flow in and act as a correction factor for the entire market.
In the past few years and months, the Government has also initiated a set of reforms for the Property sector – the Real Estate Regulation Act (RERA), REITs, Benami Property Amendment and other reforms related to the FDI.Â There is a substantial difference between the collectorate rates and the rate of property in the property market. Whatever investors pay money in the initial stages, more often than not gets paid in cash. Moreover, sometimes when the buyers offer to pay large amounts of cash, they get huge discounts. The cash input in property transactions is expected to go down now with the government’s – surgical strike- on black money. In the short run, this is going to result in a fall in both the land prices and the deals that take place. Over time, the property developers could very well be forced to slash down property prices due to the high inventory and corresponding cash crunch. This suits all buyers and in the long term is expected to bring in the sense of stability in the ever fluctuating property market.
To sum it up, analysts are expecting that there could be an increased element of transparency and therefore a more professional and corporate kind of approach in the real estate sector.