WHY CURRENCY BAN WILL MAKE THE REAL ESTATE SECTOR MORE TRANSPARENTadmin
After the Narendra Modi government on Tuesday withdrew the Rs 500 and Rs 1000 note out of circulation in a major move against unaccounted wealth, the real estate sector has begun to feel the heat. But Jayashree Kurup, Editor of Magicbricks.com, thinks that in the long run, we’re going to see a more responsible, transparent real estate sector thanks to the PM’s move. Kurup on Friday also spoke to TOI about the immediate repercussions of the ban for the sector, and about the specific sub-sectors that will be affected most adversely.
Could you talk us through the immediate impact that the Modi government’s move to withdraw two denominations will have on the real estate sector?
The real estate sector functions differently in different parts of the country. So let’s talk about North India, where you saw the largest number of cash transactions in property. What we have noticed – and what has been told to us by the industry – is that the secondary market is definitely going to face the heat. If you look across the NCR (National Capital Region) market, or, say places like Chandigarh, you saw that if you were selling a property, a large volume of that – 30, 40 per cent of that – used to be dealt in cash to save on taxes.
Even small retail buyers are quite okay with giving cash. This volume of secondary market transactions is going to face the heat for at least the next five-six months. But end-users who are looking at formal means of finance – which means mortgages – are not going to be impacted. In the South Indian markets and in a large part of the West Indian markets, except maybe parts of Mumbai, we see that the markets were much cleaner, there were much less cash transactions.
You don’t really see this as a long-term problem, you see the market stabilizing pretty soon?
I don’t see this as a problem. I see this as a correction. I think with this, Prime Minister Modi has actually brought the end-user into sharp focus. Three years ago, when we had a spate of launches in the North Indian market, the end user was the eighth transactor in that process. There used to be somebody who would take 20, 40 apartments, and they would block those apartments. When the values went up another 200-400 rupees, they would sell that off to the first level of investors. There were five, six levels of investors before the end user actually entered – because the end user cannot take the risk of delaying construction.
Now what will happen is that all those petty investors who made 200, 400, 600 or maybe 2,000 rupees on a transaction will go away. And then, even if the consumer books at the early stages, and the leverage value goes up at the end of the cycle of construction, that’s a good legitimate investor who has waited out three years, four years, and then decides to exit and then go away. That is good for the market, and I think that is what is going to happen. You’ll see serious investors and you’ll see a lot of end users becoming extremely active in the market.
It sounds like you’re saying that we’re going to be looking at a more responsible, transparent real estate market.
Absolutely. Transparency was one thing that was completely lacking in this market.
You’re going to see by April 2017, all states have to notify the norms of RERA (Real Estate (Regulation and Development) Act, 2016), and they have to start setting up RERA councils, so that it becomes a reality. That’s the first thing that was very, very positive in 2016. The other thing is the Benami Transactions Act. That struck a body blow on a lot of cash transactions. And along with that this demonetization,I think we are going to see a lot more transparency in this market.
How does one account for that transparency?
Every one of the norms that have been issued in the last one year involves people declaring their assets, the construction of the assets, the stage of construction, and where the money is coming and going. Now that’s going to bring a lot of transparency because anybody can then go online, and check on the approvals, the status of approvals, the status of construction, and sales velocity. Today, nothing is declared. As more and more declaration becomes the norm, transparency in the industry will increase.
Do you think there are specific sub-sectors within the real estate space which will be more affected than others?
Yes, I think so. Actually, the maximum impact will be felt in the premium and the luxury markets, because that’s where a lot of cash transactions used to happen. Professionals, I think, largely go for mortgages, but you’ve seen the business community dealing with a lot of cash in that segment – which is already oversupplied in the country, and not a very buoyant segment of the market.
You’re going to see that segment under threat for some more time. But on the other hand, once the market picks up a little more, I see people who have smaller units selling those units, and upgrading to the luxury market.
Source : ET Reality