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Demonetization to push real estate prices down

Prime Minister Narendra Modi’s move to demonetize Rs 500 and Rs 1000 notes has definitely taken everyone by surprise. The lives of people have been disrupted in the short run and for some who were unfortunate enough to have a medical emergency during that period have been impacted permanently. Demonetization has had an adverse impact many businesses which depend on cash. The effects are worst for people who get paid in cash everyday.

There is a silver lining to this dark cloud. The real estate industry, primarily for residential estate buyers has been hit really hard and can see a lot of price correction. That cash is a major component of all real estate deals is a well known fact across the country. Cash is paid to avoid stamp duty and other taxes while purchasing a property. With the currency of choice being demonetized, the cash component has taken a huge hit. Many brokers and builders are seeing a huge chunk of their deals getting cancelled or put on hold.

Real estate developers and brokers are getting requests to accept cash in the old notes, but that is not being accepted by them. This has put more pressure on the already stressed real estate market. Sales have been down and stagnant in some cases, but with demonetization, things have gone even further downhill. The last quarter of the year usually sees an uptick in activity, but developers and brokers are not even getting any queries about their projects.

Industry observers feel that big developers who do their deals with cheques will actually benefit, as most of their transactions are facilitated by loans. However, with most consumers expecting the prices to fall, even they are having a hard time. The real estate market can be divided into two – primary and secondary. Primary buyers are the ones who buy single units in each project, but secondary buyers are financial institutions and other investors who want a good return on their investment.

With the demonetization and the new Real Estate Regulatory act, observers expect the prices of real estate to fall in the secondary market, which will in a way push down prices down in the primary market. A lot of home buyers can definitely expect to see price correction in major metros where the costs are still too high for common people, but that will still take at least 8 – 10 months.

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