India’s currency ban hits real estate market
Mr. Modi’s move took aim at the heart of India’s black-market economy by taking out of circulation existing 500- and 1,000-rupee bills in an effort to reduce corruption, counterfeiting and tax fraud.
Much of the country’s real-estate transactions, particularly land and home sales, have been conducted on a largely cash basis to avoid taxes. With many buyers now on the sidelines, sales have evaporated and huge price discounts are expected when the market gets its bearings back.
“Buyers call to ask if apartment prices have fallen or not,” said Mr. Patel, adding the complex used to sell three to four units a week before Mr. Modi’s announcement. A one-bedroom, 650-square-foot apartment in this complex sells for around 2 million rupees ($29,000).
Mr. Modi’s move is having painful repercussions in India’s real-estate market. Uncertainty and the sharp decline in demand will likely push down the values of residential property in the country’s top cities like Mumbai and Gurgaon by up to 30% over the next year, according to PropEquity, a real-estate data and analytics provider in India.
Mr. Modi on Nov. 8 basically banned all 500- and 1,000-rupee bills—roughly $200 billion—from circulation immediately. People have until Dec. 30 to exchange the old bills for new ones. But they might face tax consequences or legal problems if they try to exchange large amounts of cash that they have been hoarding.
More than $120 billion in old bills already has been exchanged or deposited, according to the central bank. But millions of people are expected to let their cash hoards go to waste and not risk the government’s ire, analysts say.
Abhishek Lodha, managing director of Lodha Developers Pvt. Ltd., a prominent builder in Mumbai, said the company has seen “a short-term impact on November sales with some spillover in December.” But he predicted the greater availability of cash in the banking system will lead to lower interest rates, and thus fuel sales of homes in the coming months.