Ban on Rs 500 and Rs 1,000 notes is going to jolt real estate. Here’s how

Indian government’s ban on Rs 500 and Rs 1,000 currency notes is expected to hit the real estate sector quite badly. Real estate is one of the champion sectors when it comes to black money and it is likely to move towards improved transparency.

The move made by the Prime Minister Narendra Modi is expected to pull down property prices as the investors will not be able to deploy their cash in real estate and thereby forcing builders to sell at lower prices. Delhi-National Capital region is expected to take a blow really hard as their market is well known for highest involvement of cash component.

"Property markets will see around 30% correction in prices. Even builders who claim that they accept only cheques will also be forced to reduce prices given the market conditions around them. Apart from big property markets, tier II and III cities will be worst affected. Land prices will also move downward as these deals used to see at least 30% cash component,” Yashwant Dalal, president of the Estate Agents Association of India, told ET.

The practice of investing unaccounted wealth is widely prevalent in real estate and the government's latest decision is expected to make things difficult for developers. There can be a rise in projects getting stuck as developers may slow down on construction given the liquidity stress for them.

"There is bound to be a downward pressure on prices of everything including real estate. This can be a good opportunity for end users to buy their dream homes. Sale of plotted developments will be worst hit. The move will lead to making the sector more transparent,” Rajeev Talwar, CEO, DLF and chairman of realtors' body NAREDCO, told ET.

Though, there is widespread panic across the sectors, some of them are happy that the filth in the sector will be cleansed.

"This is the most positive and amazing decision that would lead to cleaning up of the system, it will help in improving the country's image and attract more foreign investments. Unfair advantage that certain developers dealing in cash enjoyed hitherto has now disappeared, it's a level playing field for us and we will do much better,” Vikas Oberoi, CMD, Oberoi Realty, told ET.

Given the existing inventory across the prime property markets, the impact will be huge in several markets where payment of cash is mandatory and the major form of profit taking for developers as well as investors. These markets will see a major crash making an already difficult situation even more challenging.