The entire nation was greatly surprised when PM Modi announced the surgical strike on black money by demonetizing old currency notes of Rs 500 and Rs 1000. Chaos and confusion prevailed among the masses in the following days, as people painstakingly waited outside banks, ATMs and post offices in long queues to deposit and convert the demonetized currency. While most industry leaders have hailed the move, the real estate industry has not been so lucky, with experts pointing out that the realty industry would be adversely affected in the coming months. The next day after the announcement on November 8, the S&P BSE REALTY Index had fallen almost 13%, from 1,475 to 1,281, providing a glimpse of potential future trends.
However, things are improving now, as industry stakeholders come to realize the long-term benefits of currency demonetization. Let’s take a look at how currency demonetization will impact your real estate transactions in the near future.
Residential Real Estate: The primary residential real estate market is largely driven by home finance players, which ensures optimal transparency in transactions. As such, this segment is unlikely to be affected by any cash crunch. However, small real estate developers, who may have been accepting cash transactions, are likely to be affected. The most significant impact will be on the secondary or resale market, where transactions have often involved a major chunk of unaccounted cash (black money).
Commercial Real Estate: This segment will have minimal impact, as most transactions are entered by registered enterprises and channeled through the banking system.
Retail Real Estate: This segment has been reported to have a high incidence of transactions involving unaccounted cash. As such, the retail real estate market may be affected in the short to medium term.
Land sales and leasing: Large transactions within municipal limits are unlikely to be affected since they are mostly institutionalized. However, transactions related to agricultural land may be affected since they tend to involve a significant cash component.
Overall, the real estate sector would certainly be adversely affected, relatively more than other industries. However, experts say that this would be applicable only in the short to medium term. As transparency improves and the liquidity situation normalizes, the real estate market is expected to bounce back. Developers who may be worried about their projects getting delayed will not face such problems in the long run, as banks and financial institutions will pitch in to finance their projects.
If you have been planning real estate investments, you should wait and watch and make your move when the right opportunity materializes. Keep track of market prices, as they are likely to come down in the coming months.