How did Modis demonetization affect the Real Estate Sector? |
Posted: May 24, 2017 |
It can be easily seen that the biggest impact of demonetization of currency was seen on the real estate sector in India. Ever since demonetization took place, this sector was severely hit as it involves high financial transactions based on cash and black money. Due to the ban on high value notes of Rs. 500 and Rs 1000 in India w.e.f from 8th November 2016, the current liquid money in India in denominations of 500 and 1000 rupee notes has become void. A straight impact of this is on real estate sales since it involves a high share of cash dealing. Major Impacts of Demonetization Curb the Corruption The demonetization was put into place to deal with the traditional problem of corruption and black money in India. With this move, the Prime Minister of the country is trying to bring a long-term relief and curb the ill-practice of accumulation of black money. However, the short-term pain and suffering was inevitable considering a population of 125 crore that’s been impacted. There has always been a long-term demand in bringing transparency in the sector and make it more organized. Dealing with cash is the first possible solution to this issue. Impact on Luxury Segment One of the segments that has been severely hit is the luxury and high end segment within the real estate sector. High end sector requires huge amount of financial transactions which means huge amount of cash inflow and outflow. Anybody looking to purchase a lavish 3 BHK residential apartment in Lucknow would need to spend money worth lakhs in denomination of 500 and 1000. With demonetization into place, the cash part of the deal becomes almost impossible to carry out. Drop in Prices Another major impact of demonetization is the reduction in property prices by a range of 25-30% as the sellers find it hard to offload the property to cash starved economy. The demand of properties is less as compared to the high supply and availability. This simply means that buyers will have to shell out less money and have wider possible options to explore from. It also implies that a lot of investors who are raising prices to book more profit will simply be wiped off the sector. Impact on Unorganized sector Another significant impact has been seen on the unorganized sector and resale property market. The sector could witness downward pressure due to sluggish demand in the housing segment. The purchase of land – both in the rural and urban sector has been adversely impacted. Most of these transactions involved a high cash exchange which means a sudden and direct impact of demonetization. By and large, all the segments in the real estate sector have been adversely affected due to the issue of demonetization, at least in short term period of 6-8 months. The overall results have been a drop in demand due to less liquid money available in the market and hence insufficient cash to complete the deal.
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