Prime Minister Narendra Modi’s decision to ban Rs500 and Rs1,000 currency notes will impact land transactions and the secondary market, say real estate experts.
The residential real estate market has already been cleaned up, with primary sales occurring largely through bank mortgage. It is mostly the secondary market – where properties are bought on resale – that will be impacted through this move, going a long way in cutting the cash element.
“The move is unlikely to have any impact on the velocity of sales,” said Anuj Puri, chairman and country head of JLL India, a real estate services firm.
Getamber Anand, president of real estate body Credai, agreed that the surprise development will not disturb the primary market to a large extent because the inventory is sold to end users who avail home loans.
“Moreover, the organised part of the real estate industry has always been compliant. Only unorganised fly-by-night players will be affected. This move will actually help the industry fight for the removal of section 43CA of the IT Act more effectively,” he added.
But Pankaj Kapoor of Liases Foras, a Mumbai-based real estate rating and research firm, said there may be difficulties for the luxury market segment in the long term. As the cash component ranges between 30% and 50% of the deal value in land transactions, prices in the segment could see a 20-25% correction once black money is out of the equation, he added.
Sunil Tyagi of Zeus Law, a Delhi-based law firm, also predicted such a possibility. “Land transactions, where 40% of the payment is in black, will be affected. Land transactions involving huge cash components will stop immediately, as will transactions that are halfway through or where payment is due,” he said.
An estimated 30% of real state transactions involve black money, according to Liases Foras data