Black money had plagued the Indian economy for many years. On November 8, 2016, the Government of India demonetised some currencies. It was to reduce the usage of black money. Rs. 500 and Rs. 1000 banknotes ceased to be legal tender as the immediate impact of demonetisation. The sudden effects of demonetisation resulted in liquidity shortages. There were long queues outside banks and a lot of panic among people. Before demonetisation, people used the real estate sector in India to convert black money to white. So, there was a significant impact of demonetisation on the real estate sector in India. It led to people being cautious about spending on housing.
Keep reading to understand the effects of demonetisation on the real estate sector.
The Impact of Demonetisation on Real Estate in India
The real estate sector in India was the worst hit by demonetisation. One negative effect of demonetisation on real estate was a decrease in housing demand in India. Regular sales of homes saw a dip in property registrations that decreased by up to 40%. It created fear among real estate developers in the country. Many developers put their projects on hold to avoid losses and risk mitigation.
Most real estate transactions in the secondary sales market took place in cash. There was a huge involvement of black money. So, there was an adverse impact on the resale properties market.
The residential luxury segment gave birth to the brunt of demonetisation. This segment made major transactions through cash. The prices of luxurious properties declined by approximately 20%-30%. Yet, the reduction in this segment also opened doors for eager property buyers.
The effects of demonetisation had an impact on investors in the real estate sector. Many investors dealt with unaccounted money (black money). They invested it in the real estate sector. Demonetisation focussed on wiping out black money from the Indian economy. So, this move eliminated such investors from the market.
Yet, the impact of demonetisation on real estate was different among places in India.
Most real estate segments in Tier 1 cities in India were not affected by this move. It is because reputed and credible builders are running projects in these cities. They use legal channels to fund their projects. Also, home buyers in such projects use home loans and other finance channels.
Tier 2 and Tier 3 cities were first expected to see a decline in demand for housing over the short term. It was because most of their transactions were made in cash.
Demonetization was to bring transparency to the real estate sector in the country. Also, make the sector more organised by curbing cash transactions.
The impact of demonetisation on the real estate sector was huge with the regular home sale taking a hit. There was a sudden reduction in sales. Demonetisation was to curb black money and reduce cash transactions. So, many digital payment methods were available to people in India. Yet, many businesses still depend on cash for end-to-end transactions.
There is a renewal in the demand for housing over time. The sector is regaining momentum, especially in the affordable housing segment. Tata Capital offers customised home loans at an attractive rate of interest. Borrowers get equated monthly installments (EMIs) with flexible repayment options. Tata Capital Loans have hassle-free processing and fast disbursals.
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