It may take many months before any real changes in RE prices materialize. Besides, I doubt that free-standing property values drop that much; it may mostly manifest in the condo values

The government of India demonetized Rs.500 and Rs.1,000 banknotes on 8 November 2016, creating panic among the ?common people?. The move was necessitated for curbing black money and cleansing the economy of counterfeit notes.

The real estate and the infrastructure sectors are notoriously known for dealing in black money. It is no secret that deals involving the sale-purchase of plots, flats, house and commercial properties involve a white component and a black component. While the white component is payments which are received through normal banking channels, black refers to pure cash transactions.

To better understand the effect of demonetization it is necessary to segregate the real estate market into primary and secondary. Primary market will constitute of the new apartments and flats that are being constructed and sold by prominent real estate developers. Secondary market involves the resale of existing residential flats, land and commercial properties.

In tier 1 cities, no significant effect on the primary market is expected. The primary sales market segment mostly caters to salaried individuals and professionals, and therefore the role of black money remains extremely limited. Most of these individuals take home loan from financial institutions for purchase of these properties. However, the case may not be same in tier 2 and tier 3 cities where black money can play a much more significant role in primary transactions.

Secondary markets are likely to face some initial hiccups, should the demonetization scheme be successful. Unlike their primary counterparts, secondary market transactions usually have 30-40% cash component especially more so in non-tier 1 areas.

As readers will undoubtedly be aware, the real estate market was in a slumber for the last two to three years. Sellers were not getting the right prices, most builders had huge inventory of unsold flats and financial institution effectively had tried to limit their exposure to promoters. Therefore, it seems that though prices may get affected in the short run, they are likely to stabilize and the demonetization scheme may just be the impetus needed for the real estate sector. Downward pressure on price will invariably increase demand and kick-start the real estate sector.

While a short-term direct impact is definitely a possibility, the demonetization scheme may have a long-term indirect effect on both the real estate and the infrastructure sectors. Black money constitutes a significant portion of the informal source of capital in these sectors. Except the larger ones, entities in the infrastructure and the real estate segments require informal capital for their sustenance. Not only does such capital bear higher interest rate, it carries the added risk of being recalled anytime due to market conditions. In the event this avenue dries up, formal entities, such as private equity investors and institutional capital investors, may find this sector easier to penetrate. Therefore, in the short run ongoing development projects may get delayed due to shortfall of this informal source of capital, but once promoters accept the more formal ways of financing, their costs of capital in the long run is likely to come down.

The real estate sector is perhaps going through its most interesting phase in the last decade. Several developments such as Real Estate (Regulation and Development Act), 2016 and recent judgments of the higher judiciary requiring builders to refund money to their consumers for delayed delivery of projects may bring in the much-needed transparency required in this sector. In conclusion, it is certain that there will be minor adjustments in real estate prices in the short run and prices could come down in tier 2 and tier 3 cities. However, the demonetization scheme is likely to provide the much-needed transparency to this sector which can propel it to newer heights in the future.

This DEMONITIZATION has of course dried up the floating pool of CASH that moved about freely from sector to sector. But most of it that which has been already converted into the regular stream of flow will resurface as the white component and people who are constructing newer homes will hold onto the Value that they initially committed to sell for and hence hold onto the price point and will not budge.

Expecting for the prices to drop by a very high level say 20-30% is too much and it might never happen. But you can always try and beat the prices down by a small amount like we always did and try and get a bargain, is surely possible.

FH.

xxx
From.:
http://infracircle.vccircle.com/demonetisation-real-estate-industry/

SANDEEP MAHAPATRA
Sandeep Mahapatra is partner, Juris Corp. Advocates and Solicitors.

There is one thing you missed, he got RERA passed. That shifts the balance in favor of the buyer, in fact the builders have restarted even stalled project to complete it for fear of penalty.

The costing of housing coming down, so far no sign as you rightly said. But if he goes after benami property then there will be drastic price drop which he has already announced. Though I have one investment house but I think overall property correction will also impact the inflation. And it will benefit India in long run.

Nothing is changed even close 3 months of demonization of currency.
I kept asking my friends and family back home to see if there is any price correction for decent property..nada...
but the transactions almost stand still..except few here n there..
Just my 2 cents

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MK