By Accommodation Times News Bureau.
Real estate prices have fallen following the demonetisation move and are likely to go down further as investing undeclared income in real estate will become difficult, says the Economic Survey.
One of the aims of demonetisation was bringing down real estate prices, chief economic adviser Arvind Subramanian said after the economic survey was tabled in Parliament. “Demonetisation could have a particularly profound impact on the real estate sector,” the economic survey said. On the short-term impact, it said “prices declined, as wealth fell while cash shortages impeded transactions”. About the likely longer-term effect, the pre- Budget document said, “prices could fall further as investing undeclared income in real estate becomes more difficult”.
The tax component could rise, especially if Goods and Services Tax, slated to roll out in July, is imposed on real estate. Much of the black money accumulated was ultimately used to evade taxes on property sales, the survey said, adding that this type of tax evasion will come to an end as curbs on unaccounted wealth get stricter and financial transactions through electronic means increase.
While too early to assess the permanent effects of demonetisation, the survey said the weighted average price of real estate in eight major cities, already on a declining trend, fell further after November 8, 2016. “An equilibrium reduction in real estate prices is desirable as it will lead to affordable housing for the middle class, and facilitate labour mobility across India currently impeded by high and unaffordable rents,” it said. Commenting on the survey, real estate experts said that cash transactions in the real estate market are expected to come down further following demonetisation.
Experts also said that real estate prices have corrected by 10% to 15% after demonetisation and are likely to correct by 5% to 7% after newly enforced Benami Transactions Act, which attracts a heavy penalty and rigorous jail term of a maximum seven years, are put in place.