Realty gets a check, but stability expected

The real estate sector that has been accused of hitching its fortunes to illicit funds suffered a body blow after the government scrapped high-value banknotes in a blitz against black money and corruption.

Realty stocks ended 17.5% lower on Wednesday while property prices, according to conservative estimates, slumped across the country.

Experts said the fall in prices is short-term and will stabilise soon, bringing transparency to the sector and ending dubious cash transactions.

“In the long run, the move is likely to prove structurally positive for the real estate sector,” said Anshuman Magazine of real estate services firm CBRE.

Union urban development and housing minister Venkaiah Naidu held out hope to homebuyers.

“The decision will give huge relief to homebuyers. The inflated price of land will come down and make housing affordable for a large section of society.”

His colleague, transport minister Nitin Gadkari, said as much.

“The move will check the black money in real estate. Taxpayers need not panic. There will be teething trouble but things will even out eventually.”

Questionable transactions are said to be widespread in real estate, which the government is trying to clean up with a landmark law to regulate the sector that contributes about 9% of India’s gross domestic product.

The law is designed to protect millions of homebuyers facing harassment because of limited legal options at times of dispute, as regulator will oversee all future transactions and settle disputes.

Homebuyers would gain again from the government’s latest move that would do away with speculative pricing. “There was a lot of speculative activity due to cash transactions. But now, prices will be real and it will be advantageous for the buyer,” said Shveta Jain of Cushman and Wakefield, a real estate services company.

Small-time operators in the realty business will bleed from the crackdown on black money.