Reaction to banning of Rs. 500 & 1000 notes
Anuj Puri, Chairman & Country Head, JLL India:
India 9 November 2016: 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. The effects will be far-reaching and immediate, and shake up the sector in no uncertain way. Stricter measures against black money have for long been required to help bring about greater transparency, give the Indian real estate sector more credibility and make it more attractive for foreign investors. Black money deals are more common on the unorganized market, but this practice has, in fact, been on the decrease with greater awareness on the part of buyers. Before too long, the caricatured version of black money driving Indian real estate is no longer applicable.
Inputs from CREDAI and Brigade Group on demonetisation of Rs 500 and Rs 1000 currency notes and its impact on real estate
Yesterday, Nov 8th was the crucial day in the Indian & global history. Central Government made a BIG BOLD move of banning Rs.500 & Rs.1000 currency notes an important step towards destabilising parallel economy (i.e. black money). On the same day, US has voted for the new president and basis the early indications, global markets have weakened that has led to Indian indices seeing dramatic drop.
Let’s understand how this will impact the Real Estate, particularly in Bangalore and Karnataka
Banning the large denomination currency notes
- Step towards cleaning up the system by flushing out the counterfeit currency from the market
- Trouble for players who have unaccounted transactions & hoard cash
- Parallel economy (hawala operators & unorganized sector) will have trouble explaining the cash holding that is not accounted
- After Voluntary Disclosure Scheme (VDIS), this move signals the government is not going to allow parallel economy growth
Extremely bold & positive step by Government of India. In long term, economy will considerably benefit and help in following ways:
- Level playing field for clean and ethical players.
- Transparency in the sector immensely improves
- Confidence of home buyer improves with serious players will now become stronger
Multiple views state that there will be uncertainty in the markets specifically Real Estate:-
With squeeze on black money, and flushing out the large currency denomination will have short term impact on liquidity in the overall market
- Regions & Cities where the cash component being accepted for property deals will see serious pressure
- Perception that prices will soften/crash in Real Estate may not be a possibility in Southern states like Karnataka, Tamil Nadu & Telangana. Most of the buyers (almost 90%) are directly or indirectly connected to organized players like Manufacturing, IT & Services Sector
- The impact of prices softening can be a possibility in Northern & Eastern states, where the buyer/seller have been following a set norm for decades. Couple of states in Western & Central India may also witness such softening
- Secondary transactions will soften or reduce in the short term also may not stand true for Southern states, as most of the buyers in place like Bangalore are from services sector, who are hardly exposed to unaccounted money being used for secondary/primary transactions
- Land prices will soften is another expectation which may also not stand true as we have witnessed in 2008 & 2011, when prices softened sellers don’t transact unless they desperately need money
- Cities like Bangalore, Mangalore & Mysore don’t have investor led demand as compared to NCR, Mumbai, Ahmedabad & Kolkata
- Cities mentioned above are driven with end-user led demand and most of the buyers have always looked at mortgage for funding the transaction. None of these end-users have unaccounted money to fund purchase transactions
- With RERA being introduced soon, the compliance costs and other regulatory costs will only make the prices go up shortly. Smart buyers will not wait for RERA to be fully implemented to buy a home and lose out on price benefit
With Trump winning the US elections, global stock & commodity markets becoming volatile another event that has added nervousness to the news reader. We continue to believe that he is pro-India and will take all the steps that will only boost India trade relationship with US. The new US policy level decisions may have impact on global economy but somewhere there is a feeling that relationship with India will be only better in the coming months.
Secretary, CREDAI Bengaluru
Demonetization is an effective strategy tool of the Government and what has been done in a swift manner is a welcome move. From reliable information and opinion of experts, the circulation of legal tender is very much below the actual money minted by the Treasury. This causes economic bottlenecks which as a consequence creates inflationary trend.
The effort will not affect the common man, since the changeover is expected to be smooth and the restrictions of withdrawal will be a temporary phenomenon. In the absence of control of withdrawal and transaction, banks will face challenges in handling huge need for converting genuine money and subsequent withdrawal immediately. The next couple of weeks should see near normalcy in all trade and other activities. Since this step is to address national security need, every citizen need to put in his or her share of effort and if it involves struggle, one has to bear it as a contribution to the welfare of the county.
The increased circulation of money post conversion will enable banks create better lending opportunity with perhaps lowered interest rate. This in effect will cause less inflation and better growth.
Real estate will infact see better days once the circulation of currency increases in the economy.
Mr. Akash Kapoor, Director, Elan Group inputs: The surgical strike on black money is PM Modi's strong step to curb corruption that has been plaguing the Indian economy for a long time. The decision is going to profit the consumers in a huge way as the prices of various commodities will fall drastically. Subsequently, It is a positive development which will eventually contribute to the growth of the country and will boost the digital economy. Most importantly the fall of the parallel economy will facilitate cash generation and we are hopeful that the interest rates would be lowered, this subsequently would have a positive impact and people will definitely invest in real estate. We are anticipating a major boom in the real estate industry with RERA setting the transparent tone. The step taken by PM Modi is highly commendable and will surely receive a positive response from all the sectors of the society
Mr. Sumit Berry, Managing Director, BDI Group inputs: "The Modi government’s bold step on banning the higher currency would lead to the country’s economic development and also have a widespread impact in the real estate sector. This decision will surely have a positive impact on real estate as well since the primary transactions are via home loans.The buyers are surely going to benefit from it as this will give them an opportunity to buy their dream homes. In the long term this decision would strengthen our nation’s economy."
Sumit Berry , MD - BDI