The demonetisation move is having an immediate impact on the residential real estate market where the involvement of cash (the black money component) had almost become an indubitable “must”. The quantum of such involvement creates a strong entry barrier for many genuine home buyers as black money component inflates the price of properties. Such a taint had dominated the luxury housing space more, but the lesser-priced residential properties in smaller towns were not untouched by it either. Demonetisation is likely to make such a practice a thing of the past, bringing down home prices by up to 25%. “The current dispensation has been quite sympathetic to the long pending demand of stakeholders to bring transparency in the housing sector and the demonetisation move would surely bring a structural change on the transparency side,” says Anurag Jhanwar, Business head (Consulting and Data Insights), PropTiger.com.
Industry mavens feel that over-leveraged developers, who have already taken such cash component, would be in big trouble. These developers would now have to reduce prices to exhaust the huge pile of unsold inventories (homes) located in many big cities of the country. Delhi and its adjoining NCR tops the list with about 1.75 lakh of unsold homes, followed by Bangalore and Mumbai having about 80,000 luxury apartments each which are yet to be sold. “With black money suddenly being wiped out of the market, a lot of investors who have been investing in projects with unaccounted-for money — and raising prices to book profits — will be eliminated from the system, thereby aiding a much-needed correction,” says Ashwinder Raj Singh, CEO Residential Services JLL India.
Another positive impact of the demonetisation decision would be on land prices which are expected to come down.
Reduced land prices would have a cascading impact on making “Housing for all” a reality. Cheaper land will eventually translate into cheaper homes as land prices make up about 20% of the cost of affordable homes .
The Narendra Modi government has been taking synchronised steps to bring sanity to the real estate sector which currently is struggling with subdued demand.
The passage of the Real Estate (Regulation and Development) Act (RERA) is “essentially aimed at giving more powers in the hands of customers by giving them more knowledge about the properties they aspire to buy”, says Jhanwar. RERA is expected to be fully operational in the next one year, depending upon the enthusiasm of states. The Act obligates every state to appoint a regulator to oversee the transparency promised by the Act.
The regulator would ensure that all the projects launched by developers are compulsorily registered with the authorities with the attendant disclosure of all the relevant details pertaining to completion of projects.