Rakesh Jain

INFLUENCE OF LESS CASH ECONOMY ON Associate Professor

RICS School of Built Environment
REAL ESTATE AS ASSET CLASS IN INDIA Amity University, Noida. INDIA
Email: rjain@rics.org
TOPICS
Context
Background
Introduction
Problem statement
Methodology
Results
Discussion
WELKOM TO INDIA
o95% business transactions happen in cash
oOut of 125 crore people, only 3.65 crore individuals filed their tax returns in the
assessment year 2014-15
o24 lakh people have income above INR 10 lakh but 25 lakh cars bought per year
since 2001, including 35,000 luxury cars
o48,417 persons reporting income of more than INR 1 crore in a year
oIndias tax revenue as a percentage of its GDP was 16.7 per cent in 2016,
compared with 25.4 per cent in the United States and 30.3 per cent in Japan
 STATE OF FINANCIAL INCLUSION IN INDIA
Only 47% Indians hold bank accounts
32% of males versus 18 per cent of females have an active account
> 90% of adults receive remittances and wages in cash
Only 11% borrow from a bank
67% of respondents said they borrow through relatives, neighbours and friends
mostly in Cash

Source: Survey under the Financial Inclusion Insights program, operated by global strategic research consultancy, InterMedia, and supported by the Bill & Melinda Gates Foundation.
NOTES AND COINS IN CIRCULATION (RUPEES
BILLION)
9000.00

8000.00
7853.75

7000.00
6563.91
6325.68
6000.00
5702.48 5612.45
5359.50
5000.00 5128.07 5081.37

4453.11
4299.00
4000.00
3644.79
3468.81
3000.00 3083.04 3027.13
2631.08
2254.00 2382.52
2000.00 1917.84
1823.32
1527.28 1412.19
1229.38
1000.00 938.13 936.76
685.12 643.46
529.47 420.82
159.71 274.73
0.00 37.19 71.79
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Rs. 500 Notes Rs. 1000 Notes

https://dbie.rbi.org.in/DBIE/dbie.rbi?site=publications
 CURRENCY WITH THE PUBLIC
16000

14742.27
14000
13186.23

12000 11944.54

10853.74
10000
9689.75

8504.49
8000
7133.95

6000 6147.96

5174.34
4513.25
4000 3851.86
3365.28
2947.97
2586.75
2271.64
2000 2015.81

0
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Year Currency in Billions

https://dbie.rbi.org.in/DBIE/dbie.rbi?site=publications
 Corruption

Illegal Tax
Activities Evasion

Black
Money

Source: India government's white paper on black money, Press Release, dated 16-5-2012
WHY REAL ESTATE?
oBasic need
oEmotional connection
oTangible asset
oSocial status
oFinancial benefits
oPiggy bank approach
BACKGROUND
oIndia continues to suffer from the problem of a large shadow economy. The size of
the shadow economy is estimated in 2007 by Schneider et al. at 22.2 per cent of
GDP, compared to Chinas 12.7 per cent and Japans 11.7 per cent.
oA 2012 study by an institute of the Ministry of Finance found that cash is the least
preferred instrument for storing unaccounted wealth.
oMost preferred channel for storing unaccounted wealth in India is Real Estate and
Gold.
oSince ROI in Real estate had exceeded all the other asset classes between 2008-
2013, thus real estate investments have been the dream investment destinations
WHAT IS DEMONETIZATION?
Demonetization is defined as the act of
stripping a currency unit of its status
as legal tender.
It occurs whenever there is a change
of national currency
In 2016, the Indian government decided
to demonetize the 500 and 1000 rupee
notes, the two biggest denominations in its
currency system
These notes accounted for 86% of the
countrys circulating cash
PROBLEM HYPOTHESIS
o As the cash holding of public goes down, will it lead to fundamental shift in the asset
value of Real Estate?
oWill the shift to less cash economy bring the much needed transparency in the real
estate transaction or not?
oMapping the role of technology in facilitating less cash economy
METHODOLOGY
oliterature review on state of cash and private finance
oSurveyed focus group
oReal estate developers
oBrokers
oRetail investors of Real Estate

oPlan for qualitative research on shift in investors behaviour post demonetization

CURRENCY WITH THE PUBLIC
18,000.00
17,022.10
16,000.00
15,265.26
14,462.05
14,000.00 14,035.30 14,128.61
13,286.63 13,523.73
12,637.10
12,000.00 12,138.26
11,312.34
10,638.57
10,000.00 9,804.93
9,128.78 9,128.73
8,000.00 7,843.12 8,112.31
7,819.18

6,000.00

4,000.00

2,000.00

0.00

https://dbie.rbi.org.in/DBIE/dbie.rbi?site=publications
HOUSING PRICE INDEX (SOURCE: RESERVE BANK OF INDIA)

https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=40041
 Property Registrations in New Delhi

RESULTS 7,028 October 2016

Real Estate Developers

oDemand for luxury and high end residences is down
oPositive shift in demand for low cost and affordable housing
oPeople expressing interest in ready to move projects 4,417 November 2016

oCash crunch has slowed down the land acquisition and construction activities
Brokers
oSecondary sales have dried up
oInvestors are wary of putting investments in residential market
RESULTS
Retail Consumer
oBuying sentiments down by over 70%
oPurchase primarily for basic need fulfilment
oFocus on all cheque and ready to move deals
oShift in priority for smaller houses
CONCLUSION
oDemonetization has had a vacuum effect on cash bills
oIn a country which has 95% transactions in cash, demonetization had a stun impact
on business activities
oThis drop in business activities also impacted the real estate transactions
oThere is still no data available in terms of quantity of unaccounted wealth being
pushed through the banking system during demonetization
oThe overall consumer sentiments are that demonetization will lead to drop in inflation
and real estate prices
CONCLUSION
oWorld over residential housing is not a preferred investment destination. In fact only
6 European countries have investments in Residential segment
oNeed to research the impact of less cash on the attractiveness of real estate asset
class through structured consumer behaviour research
oThe research can lead the decision making for investors in the real estate of other
cash rich economies
DISCUSSION
oHighly volatile economic environment due to multiple policy decisions impacting the
real estate sector in India
oReal Estate Regulatory Act (RERA)
oGoods and Services Tax (GST)
oBenami Property Act
oLimit on cash transactions in Real estate
oPradhan Mantri Awas Yojna 2016 (Prime Minister Housing Scheme 2016)
SUMMARY
oCash remains the king in most of real estate transactions in developing and under-
developed economies of the world primarily due to tax structures and poor literacy
oAs the cash in the economy grew in India, it favourably impacted the real estate
oReal Estate remains the most preferred destination for parking the cash due to
convenience, anonymity and growth in returns
oIn developing and under-developed countries, the retail investors prefer real estate
over other structured instruments as investment destination
oShift towards less cash situation may fundamentally shift the attractiveness of Real
Estate as investment decision
oTechnology and tougher tax enforcements will modify the investors preferences
THANK YOU