RBI order on notes to fuel real estate deals

People might use cash to buy realty or gold before the April 1 deadline to phase out pre-2005 notes, say realty consultants

The Reserve Bank of India's decision to withdraw pre-2005 currency could lead to a spurt in real estate deals and realty prices in many parts of the country in the short term.

Realty consultants say the cash component in this segment is as high as 50 per cent in small cities and about 25 per cent in cities such as Mumbai. They add people may use cash to buy realty or gold before the April 1 deadline to phase out pre-2005 notes.

“Between now and March 31, there could be a spurt in real estate transactions, but it could dip after that, as people may not be able to use such money,” said Pranay Vakil, chairman of Praron consultancy and former chairman of Knight Frank India.

“As this is being done to increase transparency, people will be little a more cautious after March 31,” he added.

Real estate would be more impacted in non-metros such as Ahmedabad, compared to metros where the cash component was high for realty deals, Vakil said.

Sunil Rohokale, managing director at wealth manager ASK Investment Holdings, believes once the money received in exchange of old currency comes in after April 1, these funds will find their way into financial instruments or physical assets such as real estate and gold. “It is possible real estate deals may go up or gold buying will increase,” he said.

The chief executive of a city-based non-banking financial company said there would be a series of transactions to ensure pre-2005 currency became valid. “Some money will go out of the system either in form of gold or real estate and will be converted into white money,” the chief executive said.

Rajeev Talwar, executive director at DLF, the country’s largest developer, says it is better money comes into assets such as real estate than it being hoarded. “The government has taken this measure to pump in more money to fuel growth,” he said.