Demonetising notes in India: Real Estate experts reactions
23rd November 2016Category : Real EstatePublished by :Rahul Verma Reading Time : 4 Minute News Sourced : India
The recent call by government to ‘demonetize’ old 500, 1000 currency has surprised many in real estate and realtors also have their mixed-views on this decision. Here are the quotes from experts and stalwarts.
ANSHUMAN MAGAZINE, Chairman, India and South East Asia,CBRE
“It is a bold move. While it may cause some pain in the short-term, the long-term outlook for the industry looks positive. It certainly helps that the real estate industry has already moved towards transparency in its operations. Several steps taken by the Government in recent times—from the RERA Act and GST, to REIT—combined with this announcement, will further improve transparency and increase investor confidence in the real estate market in the long run.”
Immediate impact on India’s real estate sector
As a result of the Government’s decision, land prices are likely to be most impacted, as the cash component is most prominent for land transactions. Land transactions and/or sale of plots are expected to dip in the short-term, especially in the unorganized real estate segment.
In the short-term, transactions in the secondary market are also likely to be impactednegatively—especially in Tier II/smaller cities. On the flipside, this move is likely to exert downward pressure on capital values, which is expected to result in increased affordability (particularly for the housing sector) in the long run.
In the short run, there might also be liquidity concerns for the real estate and construction sector, especially when it comes to smaller development firms (mostly unlisted). The liquidity stress is likely to result in delays in construction in the short to medium term.
Long-term impact on the realty market
While it may seem chaoticinitially, in the long run the move is likely to prove structurally positive for the real estate sector. It certainly helps that the real estate industry has already moved towards transparency in its operations. Several steps taken by the Government in recent times—from the Real Estate Regulatory Act (RERA) and the Goods and Services Tax (GST), to REITs—combined with this announcement, will further improve transparency and increase investor confidence in the real estate market in the long run. This will be a landmark decision in imposing the much needed transparency in real estate transactions, particularly in the housing sector.
Arjun Basu, Co-Founder & CEO, Doorkeys.com
“This is a powerful and bold move by the Modi government. The real estate sector will finally be moving towards transparency in transactions. The secondary market will bear the biggest impact of this war against black money. The market was already in distress with a massive inventory overhang, and sellers are looking at the liquidation of their inventory at the earliest. This will benefit the consumer as the price for secondary or pre-owned properties are bound to spiral down. This will lead to more aggressive negotiations but also greater scope for transparent transactions. We laud this development”.
Anubhav Jain, Director Group Silverglades
“This is a massive step in stopping black money and an extreme step taken very abruptly. On short term basis we can view this as a step that will cause distress in real estate markets”.
Shishir Baijal, Chairman & Managing Director, Knight Frank India
“The broader effects of this move will help the sector grow in the long run. Firstly, it will create a level playing field amongst all stake holders in the sector. Institutional funding to developers which till present day came with a higher risk weightage is bound to see some softening with the increased transparency. Prices coming down to more reasonable levels in the residential property market cannot be ruled out. In the immediate future, the sector will be under serious pressure with volume and number of transactions in residential and land markets seeing a substantial downward trend. While it cannot be denied that the impact of this move will be felt in primary markets, secondary markets along with tier-II and tier-III cities will also take a hit.
However, RERA and this recent move will prove to be a game changer for this sector and next year this time the real estate sector will be a totally different industry – a more evolved, transparent and a corporatised one!”
Getamber Anand, President, CREDAI National
Effectively the primary market will not be very disturbed as the inventory was sold to end users who avail home loans. Moreover the organised part of the RE industry has always been compliant and it is only the unorganised fly by night players who will be affected. This move will help industry to fight more effectively for removal of section 43CA of the IT act as now there is no reason to charge tax on so called deemed income to both the buyer and seller post this move.
Parveen Jain, President, NAREDCO
It is a very good move by Modi Govt as this step will help in keep a check on the illegal black Money movement. If we talk about real estate sector affordable and mid housing segment will not affect as these trasactions are primarily routed through bank borrowings.
Anuj Puri, Chairman & Country Head, JLL India
The banning of higher currency notes is a major move which will help curb unaccounted-for cash in the real estate sector. We have just witnessed a tremendous step towards increased transparency in the Indian real estate industry. The effects will be far-reaching and immediate, and shake up the sector in no uncertain way. Stricter measures against black money have for long been required to help bring about greater transparency, give the Indian real estate sector more credibility and make it more attractive for foreign investors.
Sachin Sandhir, Global Managing Director – Emerging Business, RICS
Traditionally, the preponderance of ‘black’ or unaccounted for monies in real estate – largely by way of cash transactions is seen in secondary market transactions and supply chains related to primary markets viz. land, material, labour etc. Secondary markets would be affected as unaccounted cash payment would no longer take place leading to some dips in sale process for assets that are sold or purchased in the short term. However, with progress of time, it will not be surprising to see prices go up as sellers come to terms with the fact that capital gains tax has to be paid on monies. Sellers are likely to factor that liability into the sale price.
A closer look at the primary market would indicate that there are several components of informality within the production chain – such as purchase of land for onward development of a project. Twenty-four (24) hours earlier, a landowner could enter into an agreement with a developer where part of the consideration paid would be unaccounted. Now, since the landowner can no longer do that – he would either sit out on the land, stalling the entire development project, or charge a higher premium to maintain the same cash margins after tax. The same principle also works between developers, contractors and sub-contractors. All of this included, the input costs of developers will go up, and the only way then can respond will be by raising prices – which will affect a market already strained.
Jayashree Kurup, Head, Editorial and Advisory, Magicbricks.com
We welcome the bold decision made by Prime Minister Narendra Modi to withdraw Rs. 500 and Rs 1000 denomination currency notes from midnight, yesterday. This is a tremendous step towards increased transparency in the Indian real estate industry, which has been reeling under the negative impact of black money and corruption. Coupled with RERA and the Benami Transactions (Prohibition and Amendment) Act, the effects will be far-reaching and reform the sector in no uncertain way. While in the short term, the markets could be impacted with cash flow issues would affect some sales, however in the long run it will have a positive effect on sector , bringing in more credibility and making it more attractive for serious investors, including foreign investors. It will help make the transition from an investor driven market to a user governed market, with clear ground rules, creating a win-win situation for all stakeholders.
Sahil Kapoor, Executive Director, RE/MAX India
It might just result in sentiment setback for a while but it will ultimately prove to be one of the best decisions for long term growth and sustainance of this industry. The industry will move towards transparency and professionalism and serious and clean players will reap the benefits. The prices will become more affordable for end users and there will be no reasonable correction. It should be an opportunity for people to buy their dream home. I understand that there is a state of panic and unrest among the few in this sector but the ones with clean business are very excited that industry will turnaround and become more organised and transparent. Organised and large players like RE/MAX will welcome this move with open arms and reap maximum benefit out of it".