On the 8th of November 2016, the economy of our country was shaken by a landmark judgment of demonetizing of 500 and 1000 Rupee notes. Within hours of the Modi government passing this rule, the notes became illegal and the entire nation went in frenzy. This is the third demonetization exercise undertaken by the Indian authorities, if we include the one done just before independence in 1946. It is still too early to accurately gauge the depth of the shakeup this has caused, but its impact on the real estate sector is immediately visible. However, short-term pain is inevitable when we look for any eventual long-term cure for the disease. There has for long been a strident demand to bring transparency in the sector so that it becomes more organized, and cash dealings must necessarily be the first symptom of the disease to be dealt with.

Undeniable impact on real estate:

Organized Developers Benefitted:

Since, real estate has always been associated with a high involvement of cash transactions and black money dealings, this demonetization exercise will be beneficial to the organized builders who do not want to get involved in cash transactions. Also, buyers who want to pay in white only, will prefer the organized builders for the same.

Transparency and Trust Regained:

The common notion about the real estate industry isn’t always reflected in good light, as most of the transactions remain unaccounted for. Thanks to the demonetization this perception shall change and the real estate builders would be deemed more transparent and trustworthy.

Long Term Benefits:

The demonetization policy has completely changed the real estate scenario and how it will be viewed at par with the other sectors. The investors would start to trust and thus investments would increase a great deal.

Luxury High End Property to Dip:

A lot of high end segments of real estate will be impacted as well, since a lot of cash transactions happen in these deals. There is little or no banking and accounting involved. The demonetization move is likely to result in luxury property prices dipping by as much as 25-30% as sellers struggle to offload properties to generate liquidity.Thus, luxury home buyers, will suddenly have a much wider bandwidth of options to choose from.

The overall view on demonetization is a positive one on the real estate market. This master stroke by the Modi government will increase credibility and transparency and the sales in the primary market will improve.

With black money, suddenly being wiped out of the market, a lot of investors who have been investing in projects with unaccounted money – and raising prices to book profits – will be eliminated from the system, thereby aiding a much-needed correction. The passing of RERA (Real Estate Regulation and Development Act 2016), and now the demonetization move will ensure that going forward, the sector will lose much of its historic taint and become more transparent. Also, Home Loans will get cheaper and institutional funding will become slightly easier for real estate developers, thus approval processes will become easier and faster.

The demonetization exercise was a very necessary action which was bound to bring with it a tremendous shake-up wherever black money has played a major role. Over the long term, the Indian real estate sector will emerge stronger, healthier and capable of long periods of sustained growth