Real estate sector in India is backed by a large amount of unaccounted money in the economy. Instead of investing wealth in the industrial and business segments, it is used in purchasing apartments, villas and plots of lands across the country. More than 60% of the investments are documented while the other 40% is not displayed in the balance sheet. In one stroke of demonetizing 500 and 1000Rs note, the Prime Minister has reversed the applecart the big builders were riding. The decision may have big repercussions for the sellers but it would become a paradise for the buyers.
According to experts, the existing price of the real estate unit is bound to decrease by 30 to 40% because the cash component in the real estate dealings may disappear. People would get scared and might try to sell or buy the land holdings in the form of a cheque. Black money of the country is parked in the real estate segment making it one of the most notorious aspects of the economy.
Finance minister Arun Jaitley hoped that the houses will be finally within the budget of the middle class. For years, the prices of home never went down in India because it was supported by the huge amount of black or gray money that was never declared on paper. Since the cost of the immovable assets always increased, people found the sector far more tempting than the stock market. As a result, money poured in from different quarters and the component of the black money in circulation increased manifold.
With the decision, people will be forced to change the old notes at the local banks. They should also furnish the Id Proof along with the wealth which might invite attention from the income tax officials. In short, if you were thinking that real estate market is down and might not tank further, the ongoing mayhem indicates that the worst is still to come for the builders.
As far as the primary markets are concerned, reputed builders undertaking the residential projects conduct all the financial transactions through the bank without the usage of cash. The real issue concerns the secondary market where the real estate units are being resold. The government is not only hoping to collect addition revenue by the single move but also increase the demand for the . In spite of so many steps, will the markets recover is a question that can only be answered in the future.