Demonetisation to dampen high-end property prices

A shortage of high-denomination currency notes is expected to exert a downward pressure on house prices, especially the prices of premium or luxury residential properties, say real estate consultants.

Since cash in the Rs1,000 and Rs500 denominations is used in black money dealings in housing sector – both at the developer and the buyer ends - prices of house, especially those of luxury homes, are likely to fall by 25-30 per cent following demonetisation of Rs 500 and Rs 1,000 notes, according to experts.

Traditionally also, cash formed a major part of real estate transactions as valuations are done with an eye on reducing stamp duty and registration expenses. The way out now is either to show actual prices, which could lower demand, or reduce prices to make houses affordable to the buyer.

A trade-off between cash availability and the supply of housing is expected to push down property prices at least in the short run – until at least enough cash comes into circulation for building up fresh cash hoardings.

Investors who have been investing their unaccounted money in real estate thereby raising property prices as well are now in a bind, finding no money to invest. This, according to property market analysts, would help cleanse the property market of speculators and bring about the much-needed correction.

At the same time, home buyers will suddenly have a much wider choice as high-end properties become more affordable.

The organised real estate sector, involving major players, however, will not face much problem as they can better withstand pressures due to lack of hard cash.

However, the secondary market for houses – the so-called reselling – traditionally run on black money, could be hard hit because of a sudden dearth in cash.

The luxury and high-end segments of housing will see a major impact as this segment accounts for much of the black money transactions. The demonetisation of Rs1,000 and Rs500 notes is likely to result in luxury property prices dropping by as much as 25-30 per cent as sellers struggle to offload properties to generate liquidity.