The practice of parking the unaccounted money in Real Estate is a prevalent practice in India. While there is a lot of panic that can be seen in the property market among brokers, developers and a lot of other market contributors, a few are happy that the ban of Rs 500 and Rs 1000 currency notes combined with the Real Estate Regulatory act will sanitize the sector.
Impact on organized players- The organized players in the market share that a curb on the black money will ensure that the prices of the secondary market will go down and may be very sharply. The erosion of the black money from the market overnight will also have a ripple effect on the primary market as well. The long-awaited phenomena of the prices coming down can finally be visualized. In addition to it, Indian Real Estate will finally start operating like the global markets. With this much needed jerk, it can be expected that the volumes may go higher. The announcement is fantastic news for the organized players on the market. This will lead to an increased market share. We can look for a time when the brokers and Real Estate Consultants finally consolidate. Once the dust settles, the benefits will pass on to the players who play on volumes. Real Estate firms act like a middleman between the builders and the buyers and the coming time is definitely a positive and a much awaited time for them. This move marks a beginning of the organised real estate market in India, which we all have been cribbing and requesting for. As the developers go down to the secondary market, it's the organised middle men who never dealt in cash who will now reap the benefits. Moreover, the
Impact on sellers: The big ticket sales are going to be impacted in a massive way. A lot many time sellers, willingly or unwillingly have to settle between a mix of the white and back component while they sell their property. With this move such sales will go on a hold as the seller will not be able to accept any black component. The sellers who already have such unaccounted money with them will be in a great trouble as the banks will not accept this money. With between 10% to almost 70% of the value of the property being sold in cash, the resale market will feel the pinch. Land transactions in Real Estate have been majorly cash transactions and thus will be adversely affected. With black money getting vanished from the market, the demand of Real Estate is expected to come down. Consultants advise sellers to be patient and hold on to their properties till the revision takes place. As of now, it will be very difficult to find buyers with 100% white money, but the action is taken with a long term vision and will have a fruitful result.
Impact on buyers: This news is a mix of sentiments for the buyers. On one hand, now they can afford the property due to the downward pressure on prices, but at the same time they might want to hold on for some more time to see the actual corrections in the market. With more and more money being deposited in the banks, they will enjoy liquidity leading to revision in the home loan rates. More and more investors both nationally and internationally will be attracted to the market. There will be correction in the property prices and Real Estate will become much more transparent.
Impact on builders - The primary market and affordable housing will not see a major impact. Certain developers have been taking advantage of dealing in cash, but now it will be a level playground for all of them. Primary market has been majorly selling to clients who can avail home loans and thus it will not be impacted much. Moreover, the primary market is now being majorly driven by big reputed developers who does not deal with cash transactions. If we look closely at the primary market, there are components which involved unaccounted cash component like purchase of land. Since it will not happen from now, either the landowner will halt the project development or charge a higher premium. The same cycle will be followed between the developers, contractors, etc. So the input cost by the developer can go high, which might impact the Real Estate market. The developers dealing heavily on cash as a capital will be hurt heavily as it might lead to delay in completion of their current and future projects.
Impact on brokers: The real estate agents and brokers look quite discontent with the move. The ones dealing in sales and renting of flats may find difficulty in functioning as most of their transactions were cash based only. The unlicensed brokers, agents and individuals will vanish from the market. They will have to document all the money as no cash adjustments will happen. Unorganized and non-registered brokers will also get impacted as there will be no real estate seller and buyers deals happening through them. This is the time when big players like JLL, etc. will come into play completely for rental and resale deals.
Overall, the impact will be far reaching and immediate. Real Estate sector has always been looking for stricter measures against the black money component. There will be a short term impact due to the cash flow issue which will affect some sales, however, in the long run it will have a positive effect on the sector. Making our sector more transparent and credible, it will also attract serious buyers and investors, both nationally and globally. It will lead to a transition of Real Estate from an investor driven market to a user governed market, with clear ground rules, creating a win-win situation for all stakeholders.