Over the past few days, we are
reading a lot about the possible sectors that would get affected by the black
money eradication move started by honorable PM. People, in past, used real
estate to buy benami properties and stash their unaccounted money in it. It was
used as a Mecca for breeding corruption with bribery being given at every level
of construction to speed the clearance of the project. There was a lot of cash
involved from the time the foundation stone being laid till the keys of the newly
constructed house was given to the buyer. This was more rampant in the
residential properties, where the buyer usually is at lower tone of
negotiations.
But now, the demonetization of high
value denominations currencies is likely to lower down the cash component which had become
a routine in every single real estate deal. The major area anticipated to be hit by check on cash
payment is the secondary sales market, where to evade the high capital gain tax
and higher stamp duty; the seller would register a lower amount of sales
agreement. The remaining amount would be paid in cash. The
luxury segment of real estate also sees a lot of payment in cash. Since, the
buyer is self-sufficient to buy his property without any loan component; the
chances of irregularities are high here. There were times when people set up a dummy family to divide the existing physical cash.Hence, now the government
has taken stringent steps to ensure no deposits in relatives or domestic helps to
evade taxes, it is not possible to save one’s non taxed money for a long time.
On a positive note, the expected interest rates would also be lowered with
banks offering good rates to utilize the increase in its deposit amounts. This
would lower the high EMIs on people servicing houses with a loan.
The real estate market is likely to
see a drop in its sales as people with huge cash reserves would avoid transacting
for time being without declaring the same in their bank accounts. This is of
course subject they are holding their cash balances in demonetized denominations.
The genuine home buyer will now get a chance to get a fair price home as per
his needs. We believe that these changes would be more visible in the metro and
tier I cities.
The introduction of Real
Estate Regulation and Development Act 2016, the Benami Transactions Act and now
with the demonetization announcement, sellers could face short term trouble but
it will help to slowly eradicate the deep embedded corruption in the sector. It would also bring a lot of
transparency in the entire dealing making it inevitable for the builders and
developers to give a fair price. It is a beginning of a new revolution and will
take time to catch more heat. Lets’ help the country clean its dirt. The Dirt
of black money infecting the country’s good fortune.
Regards,
Saarthi Financial Planners
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