Rs 1,000 And Rs 500 Notes Scrapped, But It's Good News For Real Estate

The suspense over the content of Prime Minister Narendra Modi's first television address to the nation ended when the man announced his government has decided to go tough on black money hoarders. From November 8 midnight, existing notes of Rs 500 and Rs 1,000 remain “legal tender” no more, and turn into a “worthless piece of paper”. You now have 50 days — between November 10 and December 30 — to deposit these “invalid” notes to bank and post office branches.

“There is a need for a decisive war against the menace of corruption, black money and terrorism … Corruption, black money and terrorism are festering wounds which make the country hollow from within,” PM Modi said in his address.

As people made beelines in front of ATM branches to withdraw notes of lower denominations — notes of lower denomination of Rs 100, Rs 50, Rs 20, Rs 10, Rs 5, Rs 2 and Re 1, and all coins will continue to be valid — jokes poured in across social media platform, with people having fun at the expense of the money hoarders for once.

Use of black money is cited as a key reason for corrupt dealings across sectors, and the real estate sector is no exception. Being a capital-intensive asset class, the real estate sector is, in fact, the first choice among money hoarders to park their unaccounted money.

So, does a crackdown on black money mean investments in real estate will go down further? The answer is no.

Experts believe while there can be a short-term slowdown in property purchases, the bold measure announced by the PM would do the sector a great deal of good in the long term. How so?

Yes, it is true you will not be able to use your unaccounted money to make the home purchase. But come to think of it. You will get to buy the property on circle rates. The seller would not like to pay a higher capital gains tax by selling his property on the market rate.

While market rates are the prevalent rates for property in a locality, circles rates, set by the government, are the rates below which a property cannot be sold. Unaccounted money is used to bridge the gap between the on-paper worth of a property by buyers and sellers. A win-win situation for both, as by understating the property value, the buyer pays less as stamp duty and the seller pays less in capital gains tax.

On an annual basis, the government sees a revenue loss of lakhs or crores because black money is at play in property transaction across the country. Even if it encourages home-buying, use of unaccounted money is greatly harmful for the overall health of the sector. Are we also not the ones who keep raising questions about the lack of transparency in the sector? It is not the common man, who is facilitating wrongdoings in the sector? Things will not go tougher not only for those who have millions to hide. You as a common man will also be affected. But in Modi's bitter pill lies the cure for the sector.

“In (a) country's history, there comes a moment when people will want to participate in nation-building and reconstruction. Very few such moments come in life,” Modi said in his address.

By and by, as we will get accustomed to buying our homes using white money, it's not just the government that will see a growth in its revenue generation. You and I, too, will be able to demand fair dealings from all parties concerned. You and I will also see more and more global investors pumping money into India's lucrative real estate sector. Real estate, in general, will be headed for a recovery that will be long-term and everlasting.

We cheered the passage of the Real Estate (Regulation & Development) Act, 2016. Now is the time to work towards ushering in more transparency into the sector with this development.