‘Move is likely to result in luxury property prices dipping’

Luxury property sales in India are set to be negatively affected by the government’s recent demonetisation measure to wipe out black money

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MUMBAI // Luxury property sales in India are set to be negatively affected by the government’s recent demonetisation measure to wipe out black money.

India’s property market “has traditionally seen a very high involvement of black money and cash transactions”, said Ashwinder Raj Singh, the chief executive of residential services at JLL India.

He said that the resale and luxury segments of the market, in which many payments are made in cash, will be the most affected by the Indian government’s demonetisation of 500 rupee and 1,000 rupee notes this month.

“The demonetisation move is likely to result in luxury property prices dipping by as much as 25 to 30 per cent as sellers struggle to offload properties to generate liquidity.”

India’s property market has suffered from sluggish demand in recent years amid high prices and high interest rates.

Wiping out black money would bring about a much-needed correction in the Indian property market and would be beneficial to the sector in the long term by creating a more transparent industry, where developers with integrity would survive, Mr Singh said.

“There has for long been a strident demand to bring transparency in the sector so that it becomes more organised, and cash dealings must necessarily be the first symptom of the disease to be dealt with,” he said.

Colliers International in a report said it expected “little or no transactions in land, secondary sale of residential units at least for the next three months”.

“The majority of the players will get busy in figuring out how to account the black money and reduce their losses,” according to Colliers. “ At the same time, investors with white money will also adopt a wait-and-watch approach in expectation of decrease in prices.”

The demonetisation should also prompt a decline in inflation, paving the way for interest rate cuts, the consultancy added.

Pratik Mehta, the managing director of Unishire, a Bangalore-based real estate developer, said that he welcomed the steps to crack down on black money.

“We are very certain that the era of black money and its proliferation, at least within the country, will be eliminated to a great extent,” Mr Mehta said. “After the recent move, people would think twice before hoarding cash and making any illegal financial dealings.”

He said that most of the cash transactions were in the “secondary” resale market and following the government’s move to eradicate black money, “we foresee this market to change the way they deal.

“So yes, the real estate sector will now go completely cashless.”

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