The eighth day of November brought a radical change in the lives of crores of people of India. The economy is trying to grapple with the effect of demonetization announced by the Prime Minister of India. There are many sectors which are hit after the announcement of demonetization, but the call is being supposed for the larger good of the economy.

Let’s have a look at the impact of the announcement on real estate sector:

Pros:

  1. The transaction will happen mostly with e-money, the decision is undoubtedly forward-looking for real estate developers. Also, the government is now bound to create a transparent administrative system where everything could fall in-line.
  2. Acquiring land would become easier and transparent, beneficiaries to get the advantage.
  3. The affordable housing demand will rise. Middle-class buyers who buy home with 80 percent loan component will be at ease.
  4. Minimal impact on the primary market as most of the reputed developers deal with accounted cash component.
  5. Demonetization is a move that would surely make this real estate sector more credible and transparent. Furthermore, the Real Estate Regulatory Authority or RERA is poised to bring more accountability to the sector and the administrative authorities.
  6. With increased transparency in the sector, institutional funding will also come with a comparatively lesser risk weight.

Cons:

  1. Demonetization is expected to reduce the valuation of land parcels. This markdown may prove to be challenging for land providers.
  2. Approval exercise without cash may delay approvals that may slow down the speed of construction and development till regulatory authority is not completely established.
  3. The pressure on the whole real estate and infra sector is expected rise due to challenge in completing the project in the times of cash crunch and delivery as per the deadline.
  4. The demand for liquidity in the market will rise, until fulfilled, sales of real estate units may remain low.
  5. Indian Developers need to float through the difficult times, as completing the projects will become a challenge with cash component disappearing from the market.

In a nutshell, there may be challenging times ahead for the real estate developers, but once things become stable, it will make things right for property buyers and consequently for developers.

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Source: ET Realty

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