MUMBAI: The much-awaited trigger for making homes affordable for end users is here. The government’s decision to ban Rs 500 and Rs 1,000 currency notes is expected to hit the real estate sector hardest. As a sector that’s known for menace of black money, real estate is now likely to move towards improved transparency.
The move is expected push property prices, including land prices, down as investors will not be able to deploy their cash in real estate and thereby forcing builders to sell at lower prices. Of the property markets, Delhi-National Capital Region is likely to witness a hard landing as the market is known for highest involvement of cash component.
Also Read: Rs 500 and Rs 1000 notes banned: Your questions answered by the RBI
“Property markets will see around 30% correction in prices. Even builders who claim that they accept only cheques will also be forced to reduce prices given the market conditions around them. Apart from big property markets, tier II and III cities will be worst affected,” said Yashwant Dalal, president of the Estate Agents Association of India. “Land prices will also move downward as these deals used to see at least 30% cash component.”
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The practice of investing unaccounted wealth is widely prevalent in real estate and the government’s latest decision is expected to make things difficult for developers. There can be a rise in projects getting stuck as developers may go slow on construction given the liquidity stress for them.
“There is bound to be a downward pressure on prices of everything including real estate. This can be a good opportunity for end users to buy their dream homes. Sale of plotted developments will be worst hit. The move will lead to making the sector more transparent,” said Rajeev Talwar, CEO, DLF and chairman of realtors’ body NAREDCO.
While the panic is widespread among property brokers, developers and other market participants, few are happy that the move along with implementation of Real Estate Regulatory Act will cleanse the sector.
“This is the most positive and amazing decision that would lead to cleaning up of the system, it will help in improving the country’s image and attract more foreign investments. Unfair advantage that certain developers dealing in cash enjoyed hitherto has now disappeared, it’s a level playing field for us and we will do much better,” said Vikas Oberoi, CMD, Oberoi Realty.
Given the existing inventory across the prime property markets, the impact will be huge in several markets where payment of cash is mandatory and the major form of profit taking for developers as well as investors. These markets will see a major crash making an already difficult situation even more challenging.
In the quarter ended September, unsold stock across tier-I cities climbed 12% and was attributed to new launches with maximum increase seen in Kolkata, followed by Ahmedabad and Mumbai Metropolitan Region.