And they are banned
The whole country is taken by the storm with this announcement by the Indian PM Narendra Modi yesterday night. The 500 and 1000 Rs notes are not worth more than a piece of paper. Some people think that it is the crash of the market which is going to make the property buying and selling more challenging. But most of the people are considering this strong move by the Indian PM as the dawn of the better economy. In order to deal with the black money, the Govt. has certainly given a headache to the real estate sector, especially; secondary real estate market or the resale market where 40% money is not legal. The decree is going to enhance the real estate cleansing as initiated by RERA Act earlier this year.
Why does it matter?
Real estate is the perfect outlet for the black money in the country. The unaccounted money is invested primarily in the purchase of the property which brings even more returns in the due time. In India, around 10% to 70% of the value of the property is transacted in cash. The cash payment is the prominent mode in the resale market which saves the seller capital gains taxes and buyers the stamp duty. As such, real estate market has turned upside down overnight. At least 30% of the land transactions are done in cash. From the purchase of the land to the handing over of the possession, cash governs the process.
How will it affect the real estate market?
The luxury sales are going to be affected majorly while in the affordable segment, the change would certainly be minor. The prices of the affordable residential solutions have already surfaced. The developers who are not accepting the cash will also be forced to decrease the prices of their projects due to the market conditions. Although, it is too soon to estimate the price correction but real estate is not going to be the same after the big decision; surgical strike; as some people are calling it.
When the two highest denominations of the currency are banned, real estate buyers and builders are panicking. The buyers who are paying a percent of deal price in black money and the sellers who have recently accepted the cash from the sale of the property are stuck for the time being. If the buyers are purchasing the property direct from the builders, the transaction is mostly on loan and bank financed. Such dealings will go unaffected.
The result of the big announcement would fairly be positive. This would ignite the transparency in the real estate market. The trust of the buyers would be restored and we hope that it brings more foreign investors to India. Real estate is a forerunner in terms of cash economy If you have been planning to buy your first home or for investing in Indian real estate, now is the best time. You can visit our new initiative for online auction of properties at http:/auctions.ownaroof.com