Infra Talk: Demonetisation bodes well for those who maintain integrity

Most of India’s business environment has been tremendously shaken up by the recent demonetisation of the higher currency notes by the Modi government. This is the third demonetisation exercise undertaken by the Indian authorities, if we include the one done just before independence in 1946. Its impact on the real estate sector is immediately visible. Since Modi’s surprise announcement, the ripples have been spreading through the already disturbed sector, which has been experiencing excruciatingly slow growth in recent times.

The real estate sector will definitely be affected by the demonetisation exercise, as it has traditionally seen a very high involvement of black money and cash transactions. However, almost all such incidences have been in the secondary sales market, where cash components have traditionally been a veritable ‘must’. In other words, the resale properties segment will take a big hit. However, short-term pain is inevitable when we want long-term cure for the disease. There has for long been a strident demand to bring transparency in the sector. The luxury and high-end segments of residential real estate will also see a major impact from this exercise, since it is another area which has seen a lot of payments done in cash. The legal banking/financing channels have accounted for only a small part of all transactions in this space. The demonetisation move is likely to result in luxury property prices dipping by as much as 25-30% as sellers struggle to offload properties to generate liquidity. 

The primary market —or, more specifically, the market formed by projects undertaken by reputed and credible developers in the top 8 Indian cities —will remain more or less unaffected. This is because buyers into such projects take the home loans/finance route to buy their homes, and transactions are done through legal channels. 

The demonetisation move will ensure that only players who conduct their business with integrity will survive. This bodes well for end-users, who will be aware of their rights, have the assurance of not being cheated.