Demonetization turns three: How Has It Fared For Realty Sector?

Demonetization turns three: How Has It Fared For Realty Sector?
08/11/2019 , by , in News/Views

Demonetisation was mainly aimed at curbing black money, per Narendra Modi’s highly watched address to the nation on the evening of 8 November 2016. however, from slowing down the economic growth for various sectors across the nation, to giving its citizens nightmares of long, never ending queues and ensuring complete inability for individuals to spend handy cash freely, is what demonetization was associated with.

As today, marks the three year anniversary of the announcement which changed the working of the country, it is time to focus on the need for this change rather than its unpleasant repercussions. Demonetization was brought into play to curb the false use of money in our economy and cleanse the system of faulty measures leading to a corrupt system.

The real estate sector, which had historically served as a safe haven for black money, was hit hard by one of the biggest cleansing measures by the government in the form of Demonetisation.

It coincided with a time period when the housing sector, which was then reeling under slow sales and increasing inventory overhang for around three years, was looking up to some form of recovery, with the climate steadily becoming conducive to trigger the fence-sitters for making their home purchases, on the back of government measures such as Smart Cities, Housing for All 2022 and AMRUT.

However, with demonetisation, the real estate sector was inflicted with a major disruption, which further postponed its recovery process.

“Demonetization sucked out a lot of liquidity out of system, by slowly depleting the parallel cash economy. Other reform measures that had been introduced around the same time also had major impact on the real estate sector. The Real Estate Regulatory Authority (RERA), which was introduced in 2016, created a crunch on the supply side for sometime till all the projects became RERA certified. The Insolvency and Bankruptcy Code (IBC) also created some level of uncertainty for a number of developers who had weak finances, which led to many companies shutting shop. The Goods and Services Taxes (GST), which was introduced to formalize the sector, also added to the woes in the interim.” expressed Shishir Baijal, Chairman & Managing Director, Knight Frank India.

On the whole, the combined impact was massive and it took some time for the markets to adjust to the paradigm shift and structural change in the market. The sector’s transformation towards transparency and formal business practices may have impacted the housing sales in the short-term; but all of us would agree that it was a much-needed change.

Demonetisation made sure that paying taxes was not just the honest man’s responsibility. It targeted those unscrupulous practitioners who evaded taxes and black money holders who could use such currency to artificially inflate market pricing and to sponsor terrorism.

Demonetisation did leave many willing homebuyers cash strapped for a while but only to infuse the system with greater transparency. The buyer is confident now that builders or real estate agents cannot cheat him and cannot demand unaccounted money. The move also pushed banks to go in for home loan rate cuts, making buying homes cheaper.

“Three years into demonetization, we have seen more transparency and credibility return to the sector. Credible and long-standing players are seeing a market where brands, products and project completion timelines are determining the growth and success of various projects and developers. Demonetization coupled with other policy disruptions like RERA and GST have made a positive impact on the real estate sector across markets, making it a more structured and professional playing ground for all. Developers are extending the benefits of these policies through quality construction, improved timelines, front-ending their corporate reputation, and walking the extra mile to support their customers and residents to acquired quality homes and live better”. shared Manju Yagnik, Vice Chairperson Nahar Group and Vice President NAREDCO (Maharashtra)

To sum it all, while the measures like demonetization have surely formalised the real estate sector, ably helped by policy measures like GST and RERA, the recovery is not in sight anytime soon due to a severe liquidity crunch on NBFC crisis, and the overall economic slowdown. However, the positive news is the government is privy of the issue and is taking measures to solve both supply and demand related issue, which will surely help in boosting recovery of the sector.

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