Foreword

Major analysts & commentators have hailed
demonetization as a bold move which can induce
significant reduction in black money and
hoarding of cash in the times to come.
Nevertheless, there has also been concern &
criticism emanating from various quarters about
the rising inconvenience for the public.
Squaring the diametrically opposing views on
demonetization; we at Square Yards believe that
it can entail significant positive impact on the
Indian real estate industry- primarily by
rebooting the existing outlook & approaches &
pioneering new fundamentals. The
demonization will repeatedly question, the age-
old practice of buying real estate as a safe
parking for black monies. This in turn will
encourage primary estate & transparent
transaction mechanism.
Credibility of the developers, its annual books &
past records will come also increasingly come
into play as key points to ponder before going
ahead with any deal. All these in tandem will
beckon a completely fresh & new paradigm in
real estate transaction process.
In the short to mid-term notable price correction
in the secondary real estate could be seen due to
higher involvement of cash components.
In tandem, this might facilitate exponential
increase in institutionalization. Major
institutional players such as banks, private equity
houses, that till now were questioning the
opaque & unorganized nature of the industry,
will suddenly feel incentivized to invest into the
changing real estate dynamics.
Square Yards has compiled this study to let users
understand more deeply about how the
demonetization drive is going to impact the real
estate industry. This white paper is a collection
of various individual analysis done by the team
over the past few weeks & can give an in-depth
understanding about how the things might
evolve post demonetization.

Editorial Team
Square Yards Research
Introduction
Prime Minister Narendra Modis announcement standards and help it achieve a significant status
of the discontinuation of currency notes of 500 in the global real estate market.
& 100 denomination is a landmark policy
So, should one still consider real estate
decision which will have a far-reaching impact on
investment?
the Indian Real Estate.
Definitely. With black money disappearing from
Significant reduction in black money and
the scene, this would be a major step towards an
hoarding of cash is expected. The secondary real
organized and transparent real estate market.
estate would be severely impacted by this step
Once the initial knee-jerk reaction settles down,
because of the currency involvement in such
significant volume jump should happen.
transactions. The primary real estate market will
be slightly less affected as it is far more It will also change the way how real estate is
structured and less exposed to cash dealings. transacted in India. Online aggregators like
Square Yards have been working hard towards
A short-term crash in secondary real estate
creating an ecosystem of transparency and
prices can be expected and this could be as much
accountability dealings in real estate. This move
as 20-30% which will be good for the sector as
will aid their efforts. Also, a lot of secondary
yields will go up and volumes will return to the
market brokers will consolidate. We will also see
market. This correction will be more of a short-
the share of volumes of non-cash primary
term thing, as long-term fundamentals of Indian
transactions rise. The demand for online
Real Estate still say strong. The rental yields from
aggregators and organized consultants will go
properties are also expected to rise. The
up. As a proxy play to developers and asset plays,
economy is doing better than before and the
aggregators should attract more interest now.
currency overhaul will only lead to further
progress in the economy. However, the immediate fallout would be on
asset prices, which will fall, giving impetus to
With a more transparent outlook, Indian real
high volume sales. This is the beginning of
estate, will now come at par with global
organized real estate market in India.
What is Demonetization?
Demonetization means that Reserve Bank of
India has withdrawn the old 500 and 1000
notes as an official mode of payment.
According to Investopedia, demonetization
is the act of stripping a currency unit of its
status as legal tender.
Impact of Demonetization in
India:
1) Black Money: Black money stored in the
form of 500 and 1000 notes will be taken
out of our system. As predicted by ICICI
Securities Primary Dealership the
government's plan to scrap 500 and 1,000
notes will uncover up to 4.6 lakh crore in
black money.
2) Terror Funding: Fake Indian Currency
Notes (FICN) network will be dismantled by
the demonetisation measures. Taking out
500 and 1000 rupee notes out of circulation
will have a lasting impact on the syndicates
producing FICN's, thus affecting the funding
of terror networks in Jammu and Kashmir,
North-eastern states and Naxalite hit states.
3) Real estate may see significant course
correction: The demonetization decision is
expected to have far reaching effects on real
estate. Resale transactions in the real estate
sector often have a significant cash
component as it reduces incidence of capital
gains tax. Black money was responsible for
sharp appreciation of properties in metros.
4) Political parties in crisis ahead of polls:
With nearly five state elections in 2017,
demonetization has stunned political
parties. Especially, in large states like Punjab
and Uttar Pradesh, cash donations are a
huge part of "election management. In one
stroke, big parties will find themselves
hamstrung as cash hoards are often
undeclared money. Parties will have to
completely rejig campaign strategies in light
of expected cash crunch.
5) Moving towards digital payments:
Demonetization will likely result in people
adopting virtual wallets such as Paytm, Ola
Money etc. This behavioural change could
be a game changer for India. Govt. is also
introducing schemes of discounts for digital
transactions. E.g.: Fuel stations/Railway
tickets/Life Insurance etc.
6) Temporary chaos and confusion: Public
will face minor problem for a few days owing
to the scarcity of lower denomination notes
in the system.
7) Reduction of interest rates With rise in
deposits with banks, there is increased
likelihood that interest rates would fall in the
near future.
Impact on Indian Real Estate
Impact of Demonetization on Real Estate?
Real Estate Investments can be broadly
divided into 3 segments
a. Primary Sales
b. Resale
c. Land Transaction
Impact on Primary Sales: NO, because the
new property market which is primarily
driven by home loans usually has minimal
cash component in its transactions. Chances
of prices coming down in the new property
market as a result of demonetization is very
low.
About Primary Real Estate Market
Primary real estate in simple terms is the
fresh inventory sold out to buyers directly by
developer or builder. It is called primary
because it represents the first sales cycle. As
and when a resale of the property happens,
it goes into the secondary market zone.
Black Money & Primary Real Estate
Although black money does find its way in
the primary real estate, it is very insignificant
part of the payment system. This is majorly
because builders and developers have their
own obligations with banks and financial
institutions. They would always prefer a
payment by cheque rather than cash. Also,
Primary Real Estate will also see more
transparency and clear pricing something
many realty companies are public limited,
listed entities which have extra oversight on
their finances. So, it leaves very little
incentive for them to accept cash.
There have been little talked about incidents
regarding bribery for getting clearances
making builders indulge in cash payments.
However, very less of this has been proven
or clarified by government agencies.
Effect of Demonetization on Primary Real
Estate
Although property prices are expected to fall
but we do not expect a significant decline in
the primary real estate in major markets.
This is because, the prices are already at
quite reasonable levels, with grade A
developers pushing through volume sales.
The primary real estate also attracts a larger
share of end users who are buying homes to
live and reside in. That demand will still stay
on especially with the salaried class eager to
add real estate in to their portfolios.
A major shift also could be seen from
unorganized players to organized projects.
Volumes thus would increase at this level as
people look for quality real estate
investments which have clear and known
payment structure. Many small players who
have black money exposure will struggle,
encouraging people to look for known brand
names.
which has been sort of work in progress.
Also, many developers have tie-ups with
lenders which makes it easy for buyers to
make the payments. A fair amount of
transactions take place through mortgage
route in the primary market, further
Overall, it only bodes well for the primary
real estate market in India as it is a step
forward in the right direction.
Impact on Resale and Land transaction: Yes,
because resale & land transactions have
always had cash as a major component in
cushioning the impact of currency
demonetization.
their transactions and are likely to see a price
correction. These segments will see some
distress sale happening in short & medium
term. High value properties are likely to see
a higher price correction in short term.
Positive Impact on Real Estate
1. Realtor's body CREDAI said real
estate prices has a chance to rise by
about 20% in the next one year
post demonetisation as builders go
slow on new launches, introduction
4. "The RERA will put a lot of
of the new regulatory bill and higher
input cost.
2. New launches are expected to dry up
rapidly as realtors adopt a wait and
watch approach and customers
anticipate a further drop in housing
prices. The situation will be
aggravated as new approvals will be
5. Sobha Managing Director J C Sharma
slow and builders will have to be
more compliant with the Real Estate
Regulatory Act (RERA) which comes
into effect next year.
3. "The idea of a drop-in housing prices
by about 20-30% is far-fetched.
Builders, at least in Bengaluru, are
working on wafer thin PAT (profit
after tax) margins of 8-10%. There is
no scope of further decline," Credai
chairman Irfan Razack.
unorganised players out of the
market as they will not be able to
start any project before they have all
requisite certificates with them.
Moreover, approvals have been slow
and input cost, including labour cost,
is set to go up," said Razack.
said the move by the government
would result in lowering of lending
rates thus making housing more
affordable to all. "We require about
4.2 million homes in the next four
years and with supply shortage,
prices can only go up,"

Though exact data is not available, various studies done in the past
suggest that 25-35 per cent of the transactions are done through cash.
In tier-2/3 cities, the cash component accounts for over 50 per cent,

Hitesh Singla, Principal Partner, Square Yards

Source: HinduBusinessline 11, December,2016
End of Black Money: What next for Indian Real Estate
Demonetization has signaled an end of an 3) Correction in prices A correction in
era of cash transactions in Indian Real Estate. prices is expected across property segments.
Sure, cash can still be used, but it seems that However, it is yet to be seen how much it
use of cash will decrease drastically in real could be. Going forward, one can expect
estate transactions, perhaps a first in Indias more stability in prices as black money used
modern history. Black Money, experts say to have the power to disrupt prices. Clean
will disappear (most of it anyway) from real markets are more stable, secure, and
estate markets across India. So, what does transparent.
future look like for the Indian Real Estate?
4) Transformation of brokers Brokers and
1) (End) Consumer is the king again With consultants have a pivotal role in real estate.
the reduction of unaccounted cash, the end The removal of black money from the system
user would be the prime focus of attention will move brokers towards consolidation.
for builders and developers. Small time Brokers would have to get adjusted to the
investors, with large cash at hand, hoping to new money order and tie up with larger
make quick bucks often ended up inflating consultants to be more formally organized.
prices. There have been instances of
5) Status rise for Indian Real Estate At
apartments being sold to multiple people
present India is not considered as a major
even before possession was handed over.
real estate market globally. It is very opaque
This was because of investors cashing on
and not at all easy to invest in. With
even a slight increase in price. Now, end
the economy going clean and transparency
users will be direct beneficiaries as a whole
coming in, India is now inching towards
class of investors disappear. Sure, there
global standards and best practices in real
would be investors too but only serious
estate transactions.
investors with long-term investment
horizon.
2) Black Money out, technology in Over
the years, start Ups like Square Yards have
been developing propriety technology to
bring in a fair and easy payment system for
real estate transactions. Now with cash
playing a minor role, technology will be used
big time. Take, for example, the booking
engine developed by Square Yards where
prospective buyers can pay booking amount
online, through cards from the comforts of
their home.
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