Seven days after Prime Minister Narendra Modi scrapped the old Rs 1,000 and Rs 500 notes, India’s biggest property market in terms of volumes – Delhi & NCR -- has taken a severe jolt.
Deals cracked before November 8 are either back on the negotiating table or have fallen apart as the use of undeclared cash has been curtailed.
The deals in the unorganised segment, known as the secondary market, depend heavily on unaccounted cash transactions because circle rates (minimum government rate at which a property is registered) in Delhi and in some parts of NCR are far lower than the market prices.
Market experts said they haven’t heard of any new deals being closed in the past week.
The secondary segment in real estate largely comprises farmhouses, residential plots and builder floors in New Delhi and resale apartments in Gurgaon, Faridabad, Noida and Ghaziabad.
The total unsold stock in the primary market of Delhi-NCR was 2,62,233 units on September 2016, shows data from realty research company Liases Foras. Data for the secondary market is not available due to its unorganised nature.
In some places such as south Delhi, small-time realtors hit by the move have increased rates since the cash component has been wiped out. In some cases, however, the demand of cash component has increased and deals are being renegotiated. Experts suggest this additional cash is being set aside for overheads.
In Gurgaon, the resale deal of a 150-square-yard plot with a three-bedroom house in DLF Phase 1 fell through on November 13 for want of cash after two weeks of negotiations. This prime property, owned by a non-resident-Indian (NRI), was set to be sold at R1.55 crore. The seller demanded R20 Lakh in cash.
“At the last moment, the unavailability of cash forced the cancellation of the deal,” said the real estate broker who negotiated with the owner’s relatives based in Vadodara, Gujarat, through email.
The situation is no better in Noida. The sale of a 3-BHK flat in Noida’s Sector 137, Logix Blossom County, which was to be sold at Rs 76 lakh, was put on hold after the buyer could not arrange Rs 26 lakh cash.
“I know at least three deals in Sector 137 that were cancelled because of the cash crunch,” said Jinender Jain, a real-estate broker in Noida.
The resale of apartments in Gurgaon, too, has been affected. At a high-rise, Parsvnath Exotica on Golf Course road, a R 3-crore deal for a 4-BHK flat was cancelled this week as it involved a R 1.25 crore cash component. The buyer, who could not arrange the cash in new currency, took the advance amount of R20 lakh back from the seller.
Delhi is no different. “After the cash ban, realtors have increased the rates as they need to pay more taxes on cheque payments,” said Naveen Soni, a property dealer in Delhi’s Old Rajendra Nagar.
Deals struck earlier and in which advance payments were made are the worst hit . Many aggrieved parties are mulling going to court. “In most of the transactions where deals are cancelled, advance payments are being returned. In some cases, buyers are getting three months extra to make payments in cash,” said Soni.
Experts feel the situation will not last long. The demonetisation move, they say, will eventually lead to improved transparency in the sector infamous for black money transactions in the form of undeclared cash. Some realtors are following a wait-and-watch policy, expecting things to improve in eight to 10 months.
“The secondary market in NCR relies heavily on cash. Property dealers and builders constructing builder floors or small projects have taken a severe hit after black money was wiped out,” said Sunny Katyal of real-estate brokerage firm Investor’s Clinic.
According to international rating agency Fitch, real estate developers with projects in NCR are likely to be hit by demonetisation, more than other regions, due to more reliance on cash-based transactions. The agency predicts prices and sales to go down in the next couple of years.
“The negative impact is likely to be more pronounced on sales of higher-end, premium property targeted by high-net-worth individuals and investors, rather than entry-level housing targeted by first-time homebuyers which are more often purchased by salaried individuals with limited undeclared income,” the agency said in a statement this earlier this week.