India’s Currency Ban May Lead to a Real Estate Crash


India’s Currency Ban May Lead to a Real Estate Crash

 If you’re looking to sell property in India fast, then you would probably find the current situation in India’s real estate market quite worrying. The Indian government shocked the country recently by banning currency notes of the denominations Rs. 500 and Rs. 1000.

Over 86% of the cash held by Indians is in these currencies, much of it untaxed. The demonetization scheme, as it is called, is a major economic reform and should curb corruption in India to a great extent. It is also expected to bring down real estate prices in the country quite substantially.

The reason for this is that much of India’s real estate is built on the back of what is called as “black money”, or ill-gotten wealth that nobody pays any tax on. Prime Minister Narendra Modi explained why he had banned the Rs. 500 and Rs. 1000 notes: “Our policies are focused on improving India’s long-term economic and social prospects, rather than on short-term headlines.”  

That may be true, but it cannot be denied that those looking to sell properties in India have suffered as a result. Prateek Patel of a Mumbai-based real estate company “Patel Planet” said that he hadn’t sold even a single apartment since the government banned currency notes on November 8, 2016.

He says buyers now expect lower prices on property sales. Patel said, “Buyers call to ask if apartment prices have fallen or not.”  Many buyers are holding out, hoping for prices to fall down further. Already, real estate rates have fallen by 20 percent to 30 percent in many parts of India.  

Patel says that single-bedroom apartments in Mumbai, were sold for around $30,000 before the currency ban. But now, there are no takers as buyers expect a much bigger discount on apartment prices.

There is a sharp fall in demand in cities such as Bangalore, Mumbai and Gurgaon, which is expected to drive down real estate prices substantially, possibly by 30 percent by the end of the year.

 The currency ban has created a cash crunch for many real estate developers who had borrowed heavily from private lenders at interest rates of 22% or more. The developers find themselves in a situation where they have to sell apartments at a huge discount, in order to generate cash flow and service their debt.

Builders find themselves in a chicken and egg situation, says Samir Jasuja of PropEquity. It’s no surprise that share prices of leading developers such as DLF Ltd., Housing Development & Infrastructure Ltd and IndiaBulls have fallen substantially following the currency ban.

 However, some developers such as Abhishek Lodha of Lodha Developers Pvt. Ltd. are optimistic and say that the worst of the crisis is already behind us.

There is going to be a greater availability of cash in the banking system which would lead to lower interest rates and lead to a much higher volume of sales in 2017 and beyond. From the buyer’s point of view, it is a very good time to buy property in India online.




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