India is elevating to be an aggrandizing economy. Few statistics show that India's property market was already facing decline since a couple of years on account of being unorganized, hugely inflated, a convenient way to park undeclared income and evade taxes. Our Prime Minister, Mr. Narendra Modi has come out with a very interesting and impressive strategy to crack down on unaccounted wealth/black money.
His move to demonetize Rs. 500 and 1,000 notes may not curb the root cause of black money but may dissuade corruption to a certain extent. However, real estate sector would be the worst-hit among other sectors and the market is expected to experience freeze for some time.
It is a single master stroke taken by our government to tackle all three malaises plaguing the economy-a parallel economy, counterfeit currency and terror financing. This aberrant industry is all set for some reformations that will turnaround the real estate sector like lowering of stamp duty, framing a new Act named RERA(Real Estate Regulatory Act) which will replace the mandatory clause to verify the identity of the applicants by Aadhaar database to verify a person’s identity.
The current demonetization will eliminate the cash component in the payments by the buyer, thus the property prices will become more affordable as compared to the recent scenario. This will not only curtail corruption but also restrain the trend of giving bribes for speedy approvals and sanctions from authorities, making transactions more transparent.
The stagnant price is expected to attract more investments from the NRI market. Also, banks could start funding land transactions, thereby decelerating land prices. This initiative will invite correction of prices and carve out the speculation in real estate prices. While the secondary market will take a major hit in the process, the primary market will not be impacted largely since most of the houses are sold on finance provided by the banks.
But in the long run, this sector may experience a positive demand scenario. Now, a majority of individuals with black money will be forced to travel in the same boat as honest tax paying citizens. The real estate sector may be in a muddle for around a year, but this direct attack on the parallel black economy and the impact of RERA will further bring about a discipline the industry.
However, following fair practices will provide an edge to organized players and the move will only aim to eradicate the parallel economy of black money. Thereafter, back again the real estate prices will be controlled by demand & supply and the market will reflect more transparency.
- By Mr. Rahul Shah, CEO, Sumer Group