Effect Of Demonetization On Real Estate In India
Demonetization is a term that has been on the lips of every Indian citizen since November 8, 2016, when the Indian government announced that ₹500 and ₹1,000 banknotes would no longer be recognized as legal tender. The decision was made to curb black money, corruption, and terrorism in the country, but it also had a significant impact on the real estate sector. In this article, we will discuss the effect of demonetization on real estate in India.
Before Demonetization
Before demonetization, the Indian real estate sector had been growing at a steady pace, with a compound annual growth rate (CAGR) of 11.2% between 2011 and 2015. The sector accounted for approximately 7.7% of India's GDP and was one of the biggest employment generators in the country. However, the sector was also plagued by issues such as black money, corruption, and lack of transparency.
Immediate Impact
The immediate impact of demonetization on the real estate sector was a significant drop in demand and sales. The sector was heavily dependent on cash transactions, and the sudden withdrawal of high-value banknotes led to a cash crunch. This, in turn, led to a drop in property prices and a decrease in the number of transactions. The secondary market was hit harder than the primary market, as most of the transactions in the secondary market were cash-based.
Long-Term Impact
The long-term impact of demonetization on the real estate sector is still being felt. The sector has become more transparent and organized, as buyers and sellers are now required to use banking channels for transactions above a certain limit. This has led to a decrease in black money transactions and an increase in the use of digital payment methods. However, the sector is still struggling to recover from the initial shock of demonetization, and property prices are yet to reach pre-demonetization levels.
Impact on Affordable Housing
The impact of demonetization on the affordable housing sector has been mixed. On the one hand, the decrease in property prices has made it easier for first-time buyers to enter the market. On the other hand, the cash crunch has affected the ability of developers to complete ongoing projects. The government's decision to grant infrastructure status to the affordable housing sector and provide tax incentives to developers has helped to boost the sector.
Impact on Real Estate Investment
The impact of demonetization on real estate investment has been mixed as well. The decrease in property prices has made it an attractive time to invest in the sector, but the lack of transparency and accountability has made investors cautious. The government's efforts to increase transparency and reduce corruption in the sector have helped to restore investor confidence.
Conclusion
Demonetization has had a significant impact on the real estate sector in India, with both positive and negative effects. The sector has become more transparent and organized, but it is still struggling to recover from the initial shock of demonetization. However, the government's efforts to boost the affordable housing sector and increase transparency in the sector have helped to restore investor confidence. Only time will tell how the real estate sector in India will fare in the long run.