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Fighting corruption, ending the parallel black money economy, destroying terror funding are all extremely important National Objectives and all steps necessary to achieve these, however stringent, must be taken. The demonetization of the Indian currency of 500 and 1000 denominations and introduction of new 500 and 2000 currency notes as announced by the Prime Minister on 08 Nov 2016, is one such step that has been taken by the Government to achieve the multiple aims stated above. Such demonetization is always accompanied by collateral impact on all sectors of a Nation’s economy. In the short term, this impact may range from highly positive in some sectors to extremely adverse in other sectors. However, over the medium to long term it generally has a positive and salubrious effect and helps bring greater transparency and growth in the economy.

Like all other sectors of the Indian economy the real estate sector too will be impacted by the demonetization process. Sandeep Singh, Founder of Concrete Real Estate Analytics (CREA) analyses the nature of this impact over the short, medium and long term on the sector, highlighting reasons for the same and recommending the way forward that various stakeholders need to adopt.  

Existing Scenario

 It is no great secret that so far the real estate sector has been viewed as one of the most opaque, corrupt and inefficient sectors of the Indian economy. This sad state of affairs is clearly reflected in the World Bank rankings on the Ease of Doing Business Index 2016, where we are ranked a lowly 185 out of 190 countries, amongst the worst in ‘dealing with construction permits’, 172 out of 190 in ‘enforcing contracts’ and 138 out of 190 in the ‘registering property’ parameters. The sector has also been notoriously infamous for being both a source and a destination of black money. There are numerous fundamental reasons for the same as given below.

  • Humongous population leading to intense pressure on land.
  • Deep socio-economic divides.
  • Heavy migration from rural to urban areas, in search of better opportunities and quality of life.
  • Rapid unplanned and unregulated urbanization.
  • Unholy nexus between the Political class – Builders/ Developers – Bureaucracy.
  • Inefficient Land Mapping and Land Records.
  • Differential in Circle Rates and Market Prices.
  • Domination of the sector by few large players.
  • Immense number of unorganized players due to low entry barriers.
  • Cumbersome procedures and documentation for property transaction.
  • No single window clearance system.
  • Corrupt officials.
  • Ineffective regulation and enforcement.
  • Painfully slow judiciary.
  • No specified formal qualifications/certifications necessary to become part of real estate value chain.
  • Inadequate information available for public scrutiny/ diligence about land / property records.
  • Exorbitantly high pricing of property placing it out of reach of masses.
  • Lack of adoption of global best practices and standards.
  • Poor and slow infrastructure development.
  • Interference in real estate activity by local criminal elements.
  • Deliberate maintenance of opaqueness in the system to fuel corruption and favor selected few.

The above list though not exhaustive, indicates the deep rot that exists in the sector. Till now, it has been almost unthinkable for common citizens to expect that a real estate transaction can be conducted in a smooth, efficient and transparent manner.

Short-Term Impact of Demonetization on the Real Estate Sector

It is apparent that with demonetization considerable impact will be felt in both the black and white economies over the next six months to one year. Hopefully, the black economy will be delivered a deathly blow. On the other hand, despite anticipation of surge in bank deposits, possibility of lower lending rates and greater availability of loans, the time frame for such positive effects to be felt will be well beyond six months. Also, restrictions on amount of cash allowed to be drawn by individuals/ organisations per week may extend well beyond three months, causing cash flows to shrink sharply leading to a steep decline in demand. The obvious immediate impact across all types of real estate whether residential, commercial, office or retail is that most ongoing projects will get delayed / stalled as customers, financiers, developers and allied suppliers face restricted availability of cash. An already reeling sector will stumble further. Foreign monies will be reluctant to commit in the ongoing uncertainty especially in view of the sharp fall in demand likely to be witnessed. As real estate is a relatively illiquid asset class, the uncertainty created in the minds of the people from the recent demonetization will prevent them from locking in their hard-earned capital and thus the masses will lean towards investing in asset classes with greater liquidity. Another issue that must be considered is that during periods of perceived socio-economic uncertainty people tend to dig their heels in and retract to their roots which provide intrinsic security and strength, hence they lose their sense of adventurism.  In view of the above the short-term outlook for the sector looks bleak.

Appreciated Medium Term Impact

As the dust of demonetization begins to settle down and the economy adjusts to the new normal over the next one to three years, the Government’s initiatives in the sector such as the RERA, REITS, digitization of revenue records, development of world class infrastructure etc will start fructifying, leading to the emergence of some positivity. This positivity will also get a boost from the fact that real estate pricing will achieve its natural equilibrium over the medium-term vis a vis the artificial equilibrium existing today. Increased transparency and accountability will bring greater confidence in the system and demand will begin to rise. Investor confidence will gradually build up and real estate will once again begin to be considered as an asset class. Hopefully some action will return to the sector from 2018 -19 onwards.

The Long-Term Outlook

When we look at a horizon of 5 – 10 years, India’s relentless rise as a strong, responsible regional and economic powerhouse will ensure that it occupies its rightful position on the global stage. As it resolutely continues  on its journey to become a robust global manufacturing and services hub by capitalizing its demographic dividend, India will become the centre of global attention due to its sustained progress and high economic growth rates. As world class infrastructure consolidates and SMART cities start becoming a reality, the demand for real estate will begin to peak. It is appreciated that the conditions will be right for the real estate sector to start booming again from 2021-22. 

The Intangibles

The above analysis limits itself to the real estate sector alone. However, it can and will be impacted by a host of intangibles such as The Trump Presidency, Situation in Middle East, Indo – Pak Tensions, Sino – Indian Relations, Results of 2019 General Elections, Global Economic Conditions, Rise of Federalism etc. From where we stand today, the path for the real estate sector over the short, medium and long terms is clear, what may change are the time frames involved in the recovery cycle, depending upon the extent to which the intangibles affect us.

The Way Ahead

  • Developers / Builders. Developers, builders and other members of the real estate value chain must utilize the next six months to one year to streamline their processes, usher in greater transparency and improve the quality of their funding. By fully understanding the regulations of the RERA and implementing the same, they will be able to bridge the trust deficit with the customers and regulators. The short term should therefore be utilized to transform their mindsets and organisations, to enable them to be well poised to provide qualitatively and quantitatively better services once the recovery phase sets in post 2018.
  • End Users/ Investors. Buyers would be well advised to avoid the sector till the dust of demonetization settles down. The next six months to one year should be utilized to closely observe the establishment of the new equilibrium in pricing. If all other factors remain constant, it would be better to invest in the medium term ie between year two to four (2018 – 2020) as the initial recovery sets in. In the long term (beyond 2021-22) the market will begin booming and once again witness sharply increasing prices albeit generating higher returns as well.
  • Regulators. There are no quick fixes to the ills that pervade the real estate sector. A concerted effort must be made to take full advantage of the demonetization initiative, to overcome as many challenges as possible and gradually organise and streamline the sector. Procedures and processes must be improved and accountability ensured at both ends of the spectrum. Single window clearances, ensuring time bound actions, adoption of global best practices and standards, quick resolution of disputes are some of the measures that need to be adopted over the next five years to enable the real estate sector to once again become a key contributor to the National economy.

About the Author

Sandeep Singh is the founder of CREA (Concrete Real Estate Analytics), an organisation of highly experienced professionals deeply involved in analyzing India’s real estate sector and finding optimal solutions to challenges. The opinions expressed above are of the author.




  1. I saw your piece.The subject is well analysed . Congrats.


    On Mon, Nov 14, 2016 at 2:25 PM, Concrete Real Estate Analytics wrote:

    > Sandeep Singh posted: ” Fighting corruption, ending the parallel black > money economy, destroying terror funding are all extremely important > National Objectives and all steps necessary to achieve these, however > stringent, must be taken. The demonetization of the Indian currency ” >


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