Black money crackdown: 'Land prices may crash 30% in 6 months'

In a bold step, Prime Minister Narendra Modi has banned Rs 500 and Rs 1,000 notes to clamp down on the black money menace.  This is going to impact the real estate sector, which is used by individuals to park black money, the hardest.

By Renu Yadav  
Wednesday, November 9, 2016

In a bold step, Prime Minister Narendra Modi has banned Rs 500 and Rs 1,000 notes to clamp down on the black money menace.  This is going to impact the real estate sector, which is used by individuals to park black money, the hardest.

Pankaj Kapoor, MD, Liases Foras, a real estate consultancy, said "Land prices may crash 30 per cent in the next 3-6 months. It will have a big impact especially on the land prices and luxury market . They were used as avenues to hoard black money."

Samtak Das, Chief Cconomist and National Director, Research of Knight Frank, says,  "Land prices will be under pressure as if we assume the unaccounted money is 30 per cent in residential sector, in case of land it is much higher at 50 per cent."                                                                                                                                              "The construction cost will also go down by 20-25 per cent as the money that the builder has to pay in black to get the approvals from the authorities will not happen now as people will be scared of taking cash," said Kapoor.

Real estate is already going through a tough phase. Sales growth has been muted and the prices have stagnated over the past two years. There is a huge pile-up of inventory, which is likely to go up further as this move will impact the transaction volumes. Unsold stocks in Tier-1 cities climbed by 12 per cent on a year-on-year basis as per a report by Liases Foras. Currently, there are around 1 million unsold units in the eight cities including Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai Metropoliton Region (MMR), National Capital Region (NCR) and Pune. Given the current rate of sales, it will take another 46 months  (almost four years) to sell the current inventory.

"Transaction volumes are expected to go down although for the long-term it is a good move . It was a necessary action needed," said Surabhi Arora of Colliers international.

However, experts are hopeful that over the long term, this step by the government along with the other measures taken in the past will help bring in more transparency in the market.

Anuj Puri, Chairman & Country Head, JLL India said, "The banning of higher currency notes is a major move which will help curb unaccounted-for cash in the real estate sector. We have just witnessed a tremendous step towards increased transparency in the Indian real estate industry."

"It will not only bring transparency  but will also provide a level playing field to cash and non-cash buyers. Earlier a buyer having cash had an advantage over other buyer  who could not make payment in cash," said Das.

Certain measures introduced by the government in the past  have already limited the use of unaccounted money to some extent. Now the Registrar has to inform the tax department for any property sold or purchased for over Rs 30 lakh.

Also, now the buyer has to deduct a TDS (tax deducted at source) of 1 per cent  from the seller on purchase of property worth over Rs 50 lakh and has to submit the money with the tax department. This way the transaction gets recorded with the tax department.

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