Demonetizing Impact on Real Estate Sector
20% fall in Housing Sector. Interest rates may fall.
In India one third of black money is used in real estate sector. This accounts for around 11% of GDP. People invest a major chunk of their black money in real estate as it is comparatively easy to dilute and there is huge saving in taxes and stamp duty.
1) Maximum negative impact will be seen in Real Estate Sector. Black Money is used heavily in Real Estate Transactions. This will stop to a large extent. Builders will be in trouble since HNI clients will stay away. This is precisely the reason why real estate shares have fallen by close to 20% within 2 days of the demonetizing announcement.
2) Flats will become cheaper by at least 15%, may be more...as those with black money will stay away. Lack of cash in real estate transactions will invite only genuine clients (with less/no black money). Till now builders used to quote rates as per location of the scheme. This will be discouraged to a large extent. Builders will offer discounts and other lucrative schemes.
3) Registry will be done at market rates. Less black money means less loss of stamp duty. Till now the general trend was that for a flat of 50 lakhs 10 lakhs was given in cash (Black) and registry was done on 40 lakhs. This will stop to a large extent.
4) Those who had purchased the property by paying black money and showing registry in lower amount will incur losses as further resale of that property will be as per registry amount. They will have to incur capital gains.
5) Housing loan rates offered by banks may fall... around 8.5%. This will probably be done to stabilize real estate market. Down payment limit may also fall by 10-15%.
6) Situation may improve after 6 months if there is enough cash flow.
The writer is a Manpower and Real Estate Consultant at Nagpur. He can be reached at 8788227326. Material written here is copyrighted.
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