With the ban of Rs. 500 and Rs. 1,000 denomination notes by Prime Minister Narendra Modi coming into effect from Tuesday midnight, it was the real estate sector that was the worst hit. Those who had already signed agreements with land owners for purchase of land were not coming forward to complete the deal, stating that it was not possible to mobilise huge amounts in the current scenario.
“Being a real estate agent, we make agreements with land owners and buyers. We are receiving calls from buyers that it will be difficult to arrange new denominations, as they have already arranged the payment in Rs. 500 and Rs. 1,000 denominations. It may take some time, maybe six months to a year, for things to come back to normal,” said Lakshman, a real estate agent from Sangareddy. “In this business, more than 70 per cent transactions involve black money. If someone buys land, the amount equal to registration value will be paid by white money, while the remaining amount will be paid in black. Neither the buyer nor the seller shows this amount in the account. This is a well known secret,” said Yadagiri, another agent.
Venkatesh, a real estate agent, said dealings have came to a standstill.
Reacting to the Prime Minister’s move, some realtors predicted a price correction of up to 20 per cent, while others said speculative purchases with black money will be curbed, bringing down land prices. Some others said it will take time for business to get back to normal.
Dasarath P Reddy, President of Telangana Real Estate Developers Association, while welcoming the move, said black money circulation in apartments has already come down, but there is some money circulation in high-end villas and sale of land.
C Shekar Reddy, former National President of real-estate body CREDAI, described this as a move which is part of the ongoing reforms impacting the real-estate sector over the past few years.
Already, most of the builders have been declaring the price of apartments upfront, and with banks extending loans of up to 90 per cent of the apartment amount, it will become more transparent.
According to Harsh Patodia, National Vice President, Credai, organised real-estate developers will not be affected by this decision. “All transactions of builders who are members of Credai are in cheques and accounted for. So I do not see any problem with the move,” he said.
Similarly, another Kolkata-based real-estate developer claimed that with “service people” mostly opting for homes, payments are primarily accounted for.
According to one such player in the unorganised segment, a part of his transactions/property sales have been in cash and the rest through cheques. The cash part of ₹1,000 notes is mostly used to pay out labourers and other daily capital requirement needs. This segment, he anticipates, will be hit.
M Murali, Managing Director of Shriram Properties, said there may be transitory deflationary impact on the economy.
Due to likely fall in land prices, increased bona fide demand for housing could go up particularly in the affordable housing segment.