On Tuesday, the government announced a major overhaul of currency status, making present 500 & 1000 currency notes, legally invalid. This step will have a major impact on Indian Real Estate where the component of black money is always omnipresent. Square Times looks at how will the decision impact the primary real estate market in India.
About Primary Real Estate Market
Primary real estate in simple terms is the fresh inventory sold out to buyers directly by developer or builder. It is called primary because it represents the first sales cycle. As and when a resale of the property happens, it goes into the secondary market zone.
Black Money & Primary Real Estate
Although black money does find its way in the primary real estate, it is very insignificant part of the payment system. This is majorly because builders and developers have their own obligations with banks and financial institutions. They would always prefer a payment by cheque rather than cash. Also, many realty companies are public limited, listed entities which have extra oversight on their finances. So, it leaves very little incentive for them to accept cash.
There have been little talked about incidents regarding bribery for getting clearances making builders indulge in cash payments. However, very less of this has been proven or clarified by government agencies.
Effect of Demonetization on Primary Real Estate
Although property prices are expected to fall but we do not expect a significant decline in the primary real estate in major markets. This is because, the prices are already at quite reasonable levels, with grade A developers pushing through volume sales. The primary real estate also attracts a larger share of end users who are buying homes to live and reside in. That demand will still stay on especially with the salaried class eager to add real estate in to their portfolios.
A major shift also could be seen from unorganized players to organized projects. Volumes thus would increase at this level as people look for quality real estate investments which have clear and known payment structure. Many small players who have black money exposure will struggle, encouraging people to look for known brand names.
Primary Real Estate will also see more transparency and clear pricing something which has been sort of work in progress. Also, many developers have tie-ups with lenders which makes it easy for buyers to make the payments. A fair amount of transactions take place through mortgage route in the primary market, further cushioning the impact of currency demonetization.
Overall, it only bodes well for the primary real estate market in India as it is a step forward in the right direction.
