With the Reserve Bank of India announcing the withdrawal of Rs 2,000 currency notes from circulation, people may now be looking at parking these notes either for purchasing land, primarily agricultural land, in the periphery or small towns or for buying residential stock from the secondary real estate market, real estate brokers and experts told Moneycontrol.
However, unlike demonetisation in 2016, there is no “rush” or “urgency” to do so as the apex bank has given the public time till September 30, they said.
There haven’t been immediate transactions on the ground as the announcement was made just about three days back, said builders and brokers on condition of anonymity.
Also, the impact on the real estate sector may not be as much as during demonetization in 2016 as the Rs 2,000 notes are still legal tender and comprise just about 10.8 percent of the total notes in circulation unlike Rs 500 and Rs 1000 notes that comprised almost 86 percent of the currency that was rendered invalid overnight.
The inflow into the real estate sector would, therefore, be much less this time round, they said.
Another difference is that today, real estate sales are robust and builders are launching new projects to meet growing demand and there is no stress as was the case seven years back.
Under these circumstances, withdrawal of Rs 2,000 notes may not have a direct impact on the primary (sale of housing stock held by the builder and directly sold by him). However, investors may consider other avenues to deploy these notes such as agricultural land or the secondary market (housing sale transaction between a broker and an investor), said real estate experts not wanting to be named.
There is also a possibility that builders may decide to pay off vendors and contractors, especially those who operate in the informal segment and do not possess a GST number with this cash component, said a real estate expert not wanting to be named.
It may also have a “positive” impact on real estate as some developers may use this as an opportunity to dispose of their unsold inventory, especially ready-to-move-in ones, they said.
A surge in land deals?
Some real estate experts say some of these notes may find their way into cash land deals in upcoming markets.
“One may witness a spurt in land deals going forward in upcoming locations and even in ready-to-move-in inventory held by builders. Also, the impact would be more in the secondary market rather than the primary market,” said a real estate expert.
In some pockets, especially with regard to apartment sales, the agreement value may appear lower than the market value on account of this but it will not set a trend. What this means is that if a unit is worth Rs 1 crore, it may get registered at Rs 80 lakh.
“Land deals may see traction going forward but in peripheral locations, so will deals involving ready-to-move-in residential units where sales of units may increase organically,” said a broker not wanting to be named.
“There will be no major impact because in the primary housing sales market the use of black money was almost negligible. However, there were some remnants of it in land deals and the resale housing market. This move on the Rs 2,000 note is a clear indicator that the government wants to further tighten the noose on unaccounted money. If anything, it will bring more transparency to the resale market. Neither land nor luxury housing will be impacted in any significant manner,” Prashant Thakur, Senior Director & Head - Research, ANAROCK Group.
Another real estate broker said that some may even decide to deploy these notes in the purchase of commercial properties in Tier 2 and 3 cities from developers who may charge a premium for absorbing the currency.
In 2022, a survey conducted by a community social media platform LocalCircles revealed that people are still conducting transactions in cash for real estate deals.