Will Budget 2017 focus on Benami Property?

With the government reiterating its commitment to curb Benami properties, we look at what may be in store in the union budget for 2017-18 and how it may impact the real estate sector and property buyers.

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The central government has repeatedly stated its intent to deal with Benami transactions. It is, hence, expected that several concrete steps and financial curbs on Benami transactions may be announced in the Union Budget 2017-18. However, the question that arises, is to what extent it will affect the business of Indian real estate.

With land records and transactions not digitized and up to date, it is a challenging job, to assess the extent of Benami properties in the country. Moreover, the real estate sector in the country remains largely unorganized. Nevertheless, developers within the organized segment of Indian real estate, are hopeful that there will be meaningful announcements, to curb benami properties.

Experts asserts that established developers will surely welcome concrete steps to curb Benami property transactions.

According to them, a crackdown on Benami properties can clean up the real estate sector, by improving transparency, reducing corruption and could even result in a correction in prices.

About one-third of the country’s population of 1.25 billion, lives in cities, with more people migrating to cities. The government’s ‘Housing for All by 2022’ plan, aims to create 20 million new urban homes and 30 million rural homes. Going after Benami properties, can help accelerate this plan.

Builders welcome government’s measures against Benami properties

Experts further agree that there have to be some stringent measures in the upcoming budget, to check Benami transactions. The Benami law was introduced to control black money in the real estate sector. If the laws against Benami transactions are implemented properly, the registration of property will be flawless and in the name of the actual owner. There can be control on the maximum number of property registrations under one name and land inventory can also be managed.


Experts also point out that the realty sector has lately witnessed a series of corrective measures by the government, aiming at making the sector more transparent, with the Benami Transaction Act being one of them.

The institutional framework of the realty sector has already been strengthened by the government, by amending the Benami Transactions Act, to make the law more stringent.

How prevention of Benami transactions can help the property market

When the titles are clear and transactions are transparent, the confidence of lenders will also increase and result in an uptick in lending to homebuyers. This will increase the supply of residential real estate. However, for this to happen, the government will have to come up with a well-defined roadmap. While the union budget may address the problem, in terms of financial penalties on Benami transactions and benami property holders, a mere fiscal roadmap may not enough. With most of the land records not yet digitised, structural reforms in the administration are also needed.

The government has tried to address this, by amending the original Benami Transactions Act 1988, to make the law more stringent. Under the Benami Transaction (Prohibition) Amendment Act, 2016 which came into effect on November 1, 2016, a transaction is named ‘benami’, if property is held by one person, but has been provided or paid for by another person. The act lays rules for recovery of the property and also makes Benami properties liable for confiscation by the government.

Nevertheless, the big challenge for the government is to create a mechanism where the fiscal transaction is not possible in the property market, for Benami property deals. It remains to be seen, whether the 2017 budget will address these concerns.


Ground realities of Benami transactions in Indian realty

  • After demonetisation, the curb on Benami properties, is likely to be the next big goal of the government.
  • There are more Benami transactions in the unorganised property markets and hence, they tend to remain concealed from the law.
  • With land records and transactions not fully digitised, Benami transactions remain a challenge for the government.
  • There is no clarity over what can be an ideal fiscal deterrence, to stop Benami deals.
  • There are expectations that the union budget 2017-18 may give some answers, on how to curb Benami transactions in the property market.


Why home loan lenders ask for Bank Statement.

To know about your financial activities home loan providers mandatorily ask for the bank account statement for a certain period so they can learn about the saving and spending habits of the probable loan seeker.

Lenders normally ask the applicants to furnish a copy of their bank account statement varying between 6 months to maybe a couple of years as per the practice of the bank. Such a statement is very crucial for the lender to decide the eligibility of the applicant. Hereunder, we are detailing salient points that lenders look for in your bank statement.

1. The existence of any loan being serviced

From the bank statements, the lender can easily find out the existence of any loan(s) being serviced, in case, identical amounts are debited at regular intervals. The existence of any such loan will help the lender in deciding your loan eligibility amount. An existing loan will reduce your overall home loan eligibility.


2. The level and nature of activity

For self-employed persons, the lender asks for bank statements of the account, where the business or professional income is credited. These statements will help the lender in verifying the level of business activity like sales/receipts and compare it, with the one declared in the income tax returns or in the loan application form.

It will also help the lender to identify huge cash deposits or withdrawals. Huge cash deposits in the account will create doubt unless the nature of the business warrants such deposits.

For salaried people, bank statements enable the lender to verify that the salary purported to be shown in the income tax return, is in fact credited in the bank account. In case the salary is credited month after month and the amount is also similar, it points to the salary being genuine. In case the amount of salary, as shown in the income tax return, is not credited month after month in the bank statement, it is sufficient for the lender to view such credits with suspicion.

3. Inward and outward cheque returns

Bank charges that are debited for bounced cheques or those that are returned unpaid, help the lender to know the volume of cheques returned, which are either deposited in your account or are issued by you. The volume and value of the cheques deposited or returned will point towards the profile of the customer, his financial discipline and the strength of his business.

Isolated cases of cheque returns, will not impact your chances of getting a loan. However, repeated instances of cheque returns could impact your chances of getting a loan, because the lender will tend to avoid a person who issues cheques, without ensuring that adequate balance in maintained in the bank account.


4. Account balance and nature of debits

The balance amount in your bank account reflects your financial health as well your saving habits. Regular debits (for example, in a Systematic Investment Plan) in mutual funds, will show your financial discipline and good saving habits.

There is a growing trend of using credit cards or Internet banking, for making payments for online purchases. The quantum of credit card payments or debits for online payments will help the prospective lender to understand your spending habits and pattern. This will help the lender, in determining your loan eligibility in relation to your income. Higher payments or debits in your bank account are likely to reduce your overall loan eligibility.


What will be the wish list for homebuyers in 2017.

With numerous policy changes being announced in 2016, will the property market become more buyers friendly? We look at what homebuyers expect in 2017 and whether developers can address these concerns, without any extra burden

A majority of home buyers (as many as 82%), believe that the wide trust deficit between the builders and the buyers can be bridged to a considerable extent, if the developers genuinely come forward for a dialogue to understand the home buyers’ point of view, according to a survey. More than seven out of 10 (72%), maintain that the buyer must have access to communicate with the builder throughout the project’s lifecycle. Nearly as many (68%) feel this will address conflicts, even if there are changes in the layout of the project. More than half of the homebuyers feel that if the developer starts collaborating with the buyers, then, the buyers will also understand his point of view, in the case of any delay, policy paralysis, or other force majeure.


What homebuyers want from developers in 2017?

  • Title assurance and the right to see all approvals in place.
  • Rates based on carpet area.
  • Right to a full refund, within 30 days of booking.
  • Equal penalty for delay in completion.
  • No change in the area bought.
  • No hidden charges or escalation charges.
  • Separate escrow account mechanism.
  • Free first transfer.
  • Fair agreements with indemnities for delays, poor workmanship, etc.
  • Open and transparent communication throughout the project period.

This survey was conducted in ten cities – Delhi-NCR, Mumbai, Pune, Bengaluru, Kolkata, Chennai, Ahmedabad, Lucknow, Coimbatore and Hyderabad. A total number of 2,000 home buyers were interviewed. The respondents were a mix of seasoned homebuyers, with experience in more than one property purchase and first-timers who were on a house hunt. The survey had a mix of open-ended and close-ended questions, to understand the concerns of the homebuyers.

Home buyers expect honest dialogue, on issues like hidden charges and penalties


A majority of the respondents (66%) felt that issues like hidden charges, escalation clauses or penalties, could be settled if the developer was honest and came forward for discussions. Open and honest dialogue; can take care of a majority of the issues, as homebuyers do understand the concerns and legitimate problems of the developers. Similarly, most of their concerns will not cost the developer a fortune. The real issue is the lack of trust.

A representative of developers, however, put forth their point that arm-twisting and bullying by home buyers are also a reality today, if they are involved in a project right from its beginning. The idea is to keep your position safe from vested interests, who pose as guardians of home buyers’ causes. The developers, who were upfront with the buyers, are now evasive because they have already burnt their fingers, says the representative

Another developer has a separate view stating that the real problem is the fact that the top management is seldom involved in the execution of the project and communicating with homebuyers. This creates a vicious cycle of lack of trust. If developers communicate properly with their home buyers, they will not only give you some end-user perspectives for project enhancement, but will also be your partner in progress, either through repeat buying or by referring friends and family.

Buyers demand transparency in finances and agreements

Nearly everyone (94%) was concerned with the fiscal mismanagement of developers and demanded a separate escrow account – something that will be inevitable, once the real estate regulator is in place, in 2017.

The second most-important issue for buyers is fair builder-buyer agreements. 88% demanded indemnities for delays, poor workmanship, etc., while 86% wanted homes to be sold only on the basis of carpet area. This again is very much on the cards and the real estate act also provides a defect liability clause.

Homebuyers also want builders to provide buy-back offers. While 54% expect a complete refund within 45 days of booking, another 46% said that builders should provide buy-backs, at market price or slightly lesser than market value, anytime during the construction lifecycle.

Additionally, a majority of home buyers (as many as 60%), also want a removal of transfer charges, at least for the first transfer. 22% complained that the transfer charges are too high, while only 18% are okay with it if the property has appreciated to a considerable extent.

Beyond these expectations, a lot also needs to be done at the government level (proper land titling, title insurance, quick judicial remedies, standardization of norms, etc.), to instill confidence among homebuyers.


Decisions that impacted the Realty sector during 2016.

The present year, 2016 can be termed as a year of transformation for Realty sector. A year-end review of the sector will provide an insight of the decisions that will change the course of functioning. Given below are top 10 real estate stories that shall be a game changer for this sector.

Interest subsidy for first-time buyers:

The start of this financial year brought some good news for homebuyers. The budget 2016, provided for an additional deduction of Rs. 50,000 on the home loan of Rs 35 lakhs for the home that costs up to Rs. 50 lakhs.


No service tax for affordable housing:

The central government, in order to augment the affordable housing for the poor, has exempted levy of service tax on homes having carpet area up to 60 sq. mtrs.


Home Loan Interest cut:

This year, unlike bygone years, RBI declared rate cut for several times, but the banks did not respond positively to the cut. It was after continuous persuasion by the Apex Bank that the commercial passed the benefit to homebuyers.


 RERA (Real Estate Regulation Act:

The act to protect Consumers interest came into existence this year. The act also provides for realty sector regulation. It will regulate residential and commercial real estate, developers, brokers and homebuyers alike. Though, the effectiveness of the act will depend on how much of it is adapted by the states and its implementation by them.


GST (Goods and Service Tax):

Touted as biggest indirect tax reform since Independence, GST will create a unified taxation regime. Its impact on property prices will depend on the adoption of lower or higher rate slab.


Clarity on RIET and invIT’s

This year SEBI, in order to facilitate RIET and invIT’s simplified regulation for both instruments.

Private Equity Funding:

PE investment in the real estate sector grew 22% during Jan-Sept. 2016 to Rs 28,300 Crores from Rs. 23,200 Crores during the corresponding period last year.

Folders with the label Projects and Funding

Benami Property Act:

 This act came into effect on Nov. 1, 2016. The aim of this act is to prohibit Benami transactions in Real Estate sector and curbing Black money menace in the sector.



This move by the Government is expected to impact primary, resale segment and land prices in short term. The short-term slowdown is expected but in long-term, there will be clean up of black money in real estate.


 Unprecedented Consumer activism:

This year, 2016 will go the annals of history as the landmark year om terms of legal judgments pronounced in favor of homebuyers.


How will demonetization affect different segments of the real estate market

Different segments of the real estate market, like primary, resale, land, will be impacted differently by the recent demonetization. Here is an analysis how each segment is likely to fare in the short to long term

People look to buy a resale flat as their second investment, so that it could be let out on rent. Generally, such investment is supported by taking a home loan and it is not possible to proceed in nine out of the 10 projects owing to the presence of a substantial cash component in these deals. On the other hand, many people who have recently sold their properties and accepted partial payment in cash have no option but to declare the amount and pay taxes on it.


Demonetization has resulted in a slowdown in sales, as buyers and sellers wait for cash availability to normalize.

The primary market (purchase of properties directly from developers) will not be affected much because it is already at the bottom of the price trends and further corrections are not possible. Moreover, the primary market is mortgage driven, especially at the lower and mid-end and will not face many problems. However, the luxury segment could see a bit of Land sale and the secondary (resale) market are likely to be hit for some time though due to the liquidity crunch, as investors wait for better returns.



Will all property deals be in white post demonetization?

Property consultants maintain that in the primary market, nearly all the reputed builders in metros have stopped taking cash. With transactions occurring through accounted payments, such as cheques, demand drafts or bank transfers, experts opine that the primary markets will not be affected.

Nearly 90% of the primary market in the metros, will not be impacted. The tier-2 and tier-3 cities will surely be affected though as the cash component is relatively higher in these cities.

Demonetization may also cause a slight spike in distress sales. Earlier, consumers with ready payment abilities were able to bargain and get a good deal. Now, this may be more unlikely.

Demonetization’s impact on artificial inflation

A common belief is that the real estate market is artificially inflated, due to the circulation of black money. However, developers maintain that this is not true for primary markets, as investors are no longer present in this market. The primary reason for this is that the return on investment in properties for investors is not sufficient. The purchasers are actual end-users. Thus, there should not be a significant effect on the prices.

Experts explain that inflated property prices are a result of the presence of black money. As a result, the prices of resale flats will come down by 20%-40%. With demonetization, such artificial demand will go down in the medium term, which is a major positive for realty.

Experts don’t rule out the possibility of artificial inflation in the long run. If a seller is unable to accept a ‘black’ component for the sale consideration, he may simply ask for the entire consideration in ‘white’ and levy on the purchaser, all the taxes that will be additionally incident in the process, resulting in increased prices. The same thing could happen in the primary market if upstream transactions have unaccounted components.

In this scenario, recent laws on real estate, like RERA, GST, and Real Estate Investment Trusts (REITs), can bring in the much-needed transparency and increase buyers’ confidence in the real estate market.


Which property markets will be affected by demonetization?

  • Nearly 90% of the primary market in the metros will not be impacted by demonetization.
  • Tier-2 and tier-3 cities are likely to be affected, as the cash component is relatively higher in these cities.
  • Land sales and the secondary (resale) market are likely to be affected for some time, due to the liquidity crunch.



Can buying a home serve the dual purpose of Investment and end-use

Real estate does give better ROI than any other investment instrument but can an end-user afford to act like an investor? Here are some answers

The psychology of home buyers and their expectations vis-à-vis return on investment (ROI) have traditionally been different for investors and end-users. However, this difference may be gradually disappearing, at least in the top eight cities.

Thinking in terms of risk-versus-return is something that is predominantly done by investors. The mindset of an average end-user is similar to that of a seasoned investor today, is very much debatable. Take the case of a person who rented an apartment in Atta Market, close to the central business district of Noida, at Rs 18,000 per month. With 12 years to go before his retirement, he invested in a property in Ghaziabad.

He did this with the belief that he made a sound investment decision. He felt that when he can buy the same kind of property at Rs 60 lakh in Ghaziabad then what is the point in investing Rs one crore in Noida? It does not make sense to pay extra for a property that has lesser chances of appreciating; as against an upcoming market, was his logic. Moreover, this investment gave him the flexibility of mobility, if he is transferred in future.

This raises a fundamental question, as to whether houses have become more like trading commodities and the emotional quotient associated with its purchase, has diminished in leading Indian cities. In real estate, even if the investor does not have very sound economic wisdom, the chances are that he will not lose his money. Compared to real estate, stocks are risky, as most of the companies are not blue chips and will have debt. So, even if the quantum of return is not that high in real estate, it remains a safe investment avenue, he maintains.

Experts point out that one also has to consider the buying pattern. Indians generally prefer to buy property in the top eight cities where they work, or in their hometowns where they intend to retire, even if they live on rent in the city where they work. So, if a person is not an investor and even if he is advised that the research has established that there is fantastic return in a city other than his place of work or hometown, it is unlikely that he will invest there.

Analysts maintain that end-users should not buy homes on the basis of expected price appreciation. A house may give better ROI than any other investment instrument but one has to look at a long-term time frame – of around ten years. In the residential segment, even if you pick the right project at the right price, it may take three to five years to get ROI. The time frame is important for investors as well, and the product will vary accordingly. For instance, in the residential segment, speculators can opt for pre-launch properties in north India and make money in one or two years. For mid to long-term investors, the commercial and retail segments may be a better option.

However, if one is looking at a fairly long-term period, then, investing in the land would be ideal, as the returns are highest in this category. There are instances where people have made returns worth a thousand times their initial investment, over a period of 15-20 years. Ultimately, each homebuyer has to take a conscious call, on whether s/he is an investor or an end-user.


Importance of Stamp duty for Income tax purposes

Any difference between the agreement value and the ready reckoner value of a property, has implications, not only on the stamp duty payable but also on the income tax of the buyer and seller.


When you enter into an agreement to buy a property, you have to pay a certain amount to the government, which is known as stamp duty. The amount of stamp duty is generally based on the value of the property mentioned in the agreement.

To avoid evasion of stamp duty through the undervaluation for agreements and to minimize the disputes on the quantum of stamp duty, all state governments publish an area-wise, stamp duty ready reckoner on a yearly basis. If the value of the property based on the ready reckoner is higher than the value of the property stated in the agreement, then, you will have to pay the stamp duty on the basis of the value computed from the rates in the ready reckoner. However, if the agreement value is higher than the ready reckoner valuation, the stamp duty payable will be calculated with reference to the agreement value. The stamp duty valuation also has implications on the income tax of buyers and sellers.


Importance for the seller under income tax laws

As per Section 50C of the Income Tax Act, in case the agreement value is lower than the stamp duty valuation, the law presumes that the seller has received an amount equal to the stamp duty valuation and the capital gains are computed accordingly. However, if the seller claims that the stamp duty valuation is higher than the fair market value of the property, the income tax officer can ask its valuation officer to assess the value the property for capital gains purpose. The value determined by this officer shall be treated as the sale consideration of the property for income tax purpose. However, if the valuation given by the income tax officer is higher than the stamp duty valuation, such excess valuation shall be ignored and only the stamp duty valuation shall be treated as the sale consideration. This provision is applicable to all the taxpayers, including limited companies.

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In cases, where the Stamp duty valuation is higher than the agreement value, and the taxpayer invests the net sale consideration under Section 54F to claim exemption from long-term capital gains, s/he may have to borrow money as the money received may be lower than the amount required to be invested.


Importance for the buyer under income tax laws

As per Section 56(2) (vii)(b) of the Income Tax Act, in case the stamp duty valuation of the purchased property is higher by more than Rs 50,000, then, the difference between the stamp duty valuation and the agreement value shall be treated as income of the buyer. This provision applies to Hindu undivided families (HUFs) and individuals only.

However, if the agreement date and the date of registration are different and thus, the values on these dates are also different, the valuation as on the date of agreement can be considered for this purpose, only if full or part consideration was paid by means other than cash, either on or before the date of the agreement.


What is your choice : Fixed, Semi-Fixed or Floating Home Loan.

The choice of a fixed, floating, or semi-fixed interest rate home loan, depends on factors such as the tenure of the loan, age of the applicant and prevailing market conditions

When opting for a home loan, buyers have a choice between three types of schemes – fixed, semi-fixed and floating interest rates. Choosing the correct scheme can be a tricky affair. Various factors can affect buyers in short and long term if a wrong home loan scheme is selected.

In a home loan with a fixed rate of interest, the equated monthly installments or EMIs will remain constant over the tenure of the loan. It is useful to opt for this if interest rates have bottomed out. However, fixed rates are usually higher than floating rates at any given point. On the other hand, for floating interest rate loans, the EMIs would fluctuate as per the market dynamics, as interest rates increase or decrease.”

A semi-fixed rate home loan is a combination of fixed and floating rates. The interest rates on such loans remain unchanged for a specified period of time, after which, the rate of interest is converted to floating.

What suits you?

Experts point out that when interest rates were rising, very few banks and financial institutions were willing to offer fixed rate loans. They were charging at around two to three percent higher than the prevailing floating interest rates. However, now that interest rates are on a downturn, banks have cut the margin spread and are trying to woo customers, with fixed and semi-fixed rate loans.

A home loan seeker must analyze all the factors before finalizing a loan and opt for a scheme that best suits his/her needs and not be lured by the bank’s lucrative offers.

Who should go for Floating Vs Fixed Vs Semi-Fixed rate loan

Floating rate is suitable for the persons who take the loan for a longer period which is more than 20 years. The Fixed rate is apt for short/medium term loan seekers while semi-fixed rates are suitable for medium term loan seekers.

When interest rates are struggling to stay afloat or when the rate is to fall it is advisable to go for floating rate. The Fixed rate is suitable when the interest rate is subject to adopt higher trajectory or go up. Semi-fixed rates will ideally be suited to the situation when in short term the rates are expected to rise and fall down in further course.

When the financial tide is in your favor or the income is enough to support rate fluctuation it is proper to go for floating rate. In contrast, if the tide is not in your favor i.e. the income flow is expected to remain stagnant, opt for fixed rate. The option of semi-fixed rate is also viable for such loan seekers too.

If the borrowers are in the age group of 30-35 years then they should go for floating rate of interest. Loan seeker above 50 years of age should opt for fixed rate due to their low ability to take risks. The same logic will apply on loan seekers who dither from taking risks.

Nowadays, banks are providing flexible tenures for repayment of loans, for a maximum period up to 30 years as per their requirement/eligibility. Some websites and newspapers also give a comparative analysis of housing loan schemes of various banks. Loan seekers can visit the websites of various banks, to get details of housing and other loan products and select a suitable bank accordingly.

The type of interest rate you choose has an impact on the monthly EMIs you pay. It is important that one should know the difference between the fixed rate home loan and floating rate home loan.

Market conditions and its bearing on interest rate schemes

Multiple rate cuts by the RBI, indicate that the market is entering a period of low-interest rates and the same is likely to fall further, in the coming years.

After a series of rate cuts, the RBI is now focusing on its transmission and has been urging banks to pass on the rate cuts to customers, through their lending rates. Consequently, banks may reduce their rates, which would benefit borrowers of floating rate home loans.


Demonetization : Relief to borrowers

With the government’s demonetization move affecting the availability of cash and also impacting banking transactions, the RBI has provided an additional 60 days, for the repayment of loans that are due between November 1 and December 31, 2016.


In view of the cash crunch being faced by borrowers, the Reserve Bank of India (RBI), on November 21, 2016, provided an additional 60 days, for the repayment of housing, car, farm and other loans, worth up to Rs 1 crore.


This is applicable to loans payable between November 1, 2016 and December 31, 2016, the RBI said in a notification. “It has been decided to provide an additional 60 days, beyond what is applicable for the concerned regulated entity for recognition of a loan account as substandard,” it said.

The above relaxation is available to entities running working capital accounts with any bank, with the sanctioned limit of Rs 1 crore or less. Term loans, whether business or personal, secured or otherwise, the original sanctioned amount of Rs 1 crore or less, on the books of any bank or any NBFC, including NBFC (MFI) would also get the benefit of this relaxation. This will also include housing loans and agriculture loans, it said.


The apex bank further said that all regulated financial institutions, should note that this is a short-term deferment of classification as substandard due to delay in payment of dues, arising during the period specified above and does not result in restructuring of the loans. The demonetization of higher value currency notes has affected normal banking activities, including clearing of cheques. Besides, borrowers are unable to get payments from their creditors, due to various restrictions including cash withdrawal limit of Rs 24,000 per week, limiting their options to repay their dues.


It is a welcome move by the RBI, as many people are experiencing inability to repay dues in time, because of the ongoing demonetization drive. For many of them, EMIs are due in the first half of the month. So, the relaxation will help to keep their account standard, even when the payment is not received. Neither will the borrowers’ credit score be impacted negatively due to non-payment, nor will financial institutions have to make additional provisions for sub-standard accounts.



Demonetization: Boon or Bane for foreign investors

With demonetization likely to have a major impact on cash transactions, the Indian real estate market may become more attractive to foreign investors, who are willing to bet long-term

The demonetization of Rs 500 and Rs 1,000 notes, is likely to result in an immediate reduction in cash transactions, in the real estate sector. Buyers are expected to shift towards more legitimate transactions, thus, having a structural impact over a period of time. Liquidity will contract over the short-term and prices will become more attractive. Investors will have fewer opportunities, for short-term gains.


Initiatives to attract foreign investors to Indian reality

Demonetization is the latest in a series of moves taken by the government in the last few years. The others include the introduction of the Real Estate Regulatory Act (RERA), improving the policy framework for real estate investment trust (REIT) regulations and liberalizing the foreign direct investment (FDI) policy.


These moves will make India more attractive for foreign investors and developers, as transparency is important. Earlier, they were competing with local developers and it was not a level playing field. This will send out a positive message about India to the world, with its move towards a transparent economy,

With increasing institutional investor participation, best practices are adopted and the sector matures. Thus, experts believe that we are at the start of a progressive growth cycle, in reality. One may also see consolidation among developers. These factors will surely attract more foreign investors into Indian real estate.


How demonetization affects the credibility of the property market

Demonetization could also improve the ease of doing business in the long term. Corruption in obtaining approvals is cited as the key impediment to improving ease of business in the country. By limiting the avenues to exhibit this behavior, there would be a definite positive impact on the ease of doing business. This will encourage economic growth and boost participation from local and global businesses.

However, demonetization by itself, will not bring about greater transparency or eliminate unscrupulous intermediaries.

This needs to be supplemented through appropriate regulation in real estates, such as eventual minimization of Benami property transactions, a ban on all transactions above a particular value in cash and a regime that naturally compels disclosure through the better understanding of valuations.


Impact of demonetization on REITs

Will demonetization force investors to consider other avenues for investing in real estates, such as REITs? Experts point out that investors typically engage with developers in the primary markets, which offer relative safety of their investments.


Demonetization will add to the credibility of developers, to the extent that there is likely to be less unaccounted cash transactions, even during the process of development. So, if anything, investors should actually feel safer working with developers.

Also, investors, who do not wish to get directly involved in the cycle of development and disposal of a property, typically prefer REITs. Moreover, REITs in India focus only on certain forms of income generating property, such as commercial offices, retail, hospitality, and warehousing. This leaves the residential market out of the ambit of REITs. Consequently, investors looking to invest in bulk in the residential market, will not shift focus to REITs.


Will demonetization result in lower interest rates?

With demonetization, banks are receiving massive amounts of liquidity, in the form of cash deposits. This means that there will be a surge in the funds available to them for lending and is likely to result in lower interest rates. Demonetization may also widen the tax base and improve the fiscal deficit position. A high fiscal deficit puts upward pressure on interest rates. Any improvement in the fiscal position could result in lower interest rates over the long term. Alternatively, the government can also pass on some of the additional collections to the public, through lower income tax rates. This would result in more capital in the hands of the common man and boost residential sales.