The real estate market of our nations has witnessed many good and bad times ever since the global financial crisis in 2007.however, just as it started doing well during the middle of the decade, the ban on the higher-value currency notes (Demonetization) on 8 November 2016 again hit it seriously. Demonetization has impacted hard on all the segments of our country, be it a well-established business or a small, none were spared with this move of current government. One of such sector is Real estate sector.
Demonetization and implementation of the Benami Properties Act for unregulated properties took place in the same year. Economists predicted with all these factors the growth rate of the real estate sector will slow down more than ever as a result. This situation even became more aggravated with the implementation of various government policy reforms like GST (Goods and Service Tax) and RERA (Real Estate regulation act), though these reforms were mainly aimed to protect the buyers, to bring the transparency in this sector and making builders more accountable. Though, this process took some time to rebuild the confidence of buyers again.
When this note ban happened there were questions like what would be the impact of this on real estate, would the prices of properties drop or the prices would increase in near future. The effect of demonetization was straight away visible and it witnessed ripples just after the declaration. Poor Sales, Slow Growth, challenges with heavy liquidity and high number of unsold properties were the challenges that were faced by the builder.
Prior to demonetization most of the transactions in real estate were taking place via cash and there was a huge connection of black money also. It was also predicted that demonetization would have higher impact on the re-sale properties or can say in secondary sales market as this is the one section where major chunk of transaction were happening in cash. Post demonetization the prices of luxury properties also witnessed a dip. Experts also said that as black money is wiping out from the market, the number of investor with unaccounted money will be removed from the system and this will provide a much awaited correction in this segment.
Impact of demonetization in Real Estate
1) Removal of unsecured cash transactions
After demonetization, the transparency in purchasing property and payment system has been increased. Most of the transactions happening prior to this effect were in cash so it was almost impossible for the government to levy taxes on them and real estate market was heaven for the people to park their unaccounted cash. However, a shift towards the cashless economy has brought transparency, now you can no longer buy a property using cash. And the best part about demonetization is that now property prices which were skyrocketing earlier have stabilized. This brought a big relief to home buyers.
2) Home loan interest reduced
Just after the demonetization the cash depositions in bank was increased. Earlier banks used to encourage customers to invest in deposit accounts, but all of a sudden there was a huge influx of cash. Few days after that RBI also reduced the interest rates on home loans to draw customers towards real estate investments. Lower interest rate scheme also benefited builders in resuming their pending projects which were discontinued due to lack of funds. Soon after that Government also announced affordable housing scheme which came with lower EMIs due to which buying a home became even cheaper.
3) Delay in Construction work
After the announcement of Note ban there was cash crunch all over around, and as the construction firms which were dealing in cash suddenly found themselves unable to meet their operational expenses like raw material, wages etc. Wages were paid in cash only until demonetization and as this reform removed cash entirely from the system, constructor also could not meet their expenses. Ultimately most of the under-construction projects came to a standstill. Real estate sector of metro cities was most affected.
One thing is for sure that the loss as predicted for the real estate sector was only temporary. Long term effect of note ban will be seen in future and is concluded that this sector will see a very positive change very soon, as the implementation of RERA would bring complete transparency and much more organized environment. After note ban a huge shift was seen towards cashless transaction and was done with card this has brought transparency also.
Those under constructing projects which were held due to cash crunch have picked up the speed and with the launch of affordable housing scheme buyers are now showing up their interest in buying properties. Demonetization has brought a very positive effect on the secondary sales market in fact, the buyers who were fed up with construction delays are now opting ready to move in house because what they see is what they get. Initially, secondary sales market was hit and most of the investors were seeking to exit. But later on numbers of buyers in secondary real estate market are raised by 10-12%. Price gap between the primary real estate market and the secondary has gradually decreased after demonetization which is the major positive effect in Real estate sector.