Demonetisation aimed at bringing down real estate prices: CEA

Property prices fell due to cash crunch following demonetisation and could further decline, which Chief Economic Advisor Arvind Subramanian said was one of the aims of the government behind scraping old notes.
The Economic Survey, tabled by Finance Minister Arun Jaitley in Parliament, said that the demonetisation, effected in November 2016, could have particularly "profound impact" on the real estate sector.
"Real estate you do see a blip in prices, sales and launches and of course some of it may be adverse to the economy but in the long, some of that could be good because aim of the demonetisation is to bring down real estate prices," said Subramanian, the lead author of this pre- Budget document on the state of Economy.

On short-term effect on the real estate sector through December-end, the Economic Survey said that "prices declined, as wealth fell while cash shortages impeded transactions".
Talking about the likely long-term effect, the pre- Budget document said, "prices could fall further as investing undeclared income in real estate becomes more difficult".
It said that tax component could rise, especially if Goods and Services Tax, slated for roll out in July, is imposed on real estate.

Much of the black money accumulated was ultimately used to evade taxes on property sales, the Survey said, adding that this type of tax evasion would diminish with curbs on unaccounted wealth and financial transactions taking place increasingly through electronic means.

While too early to assess whether there will be permanent effects, the Survey said, the weighted average price of real estate in eight major cities, which was already on a declining trend fell further after November 8, 2016.
"An equilibrium reduction in real estate prices is desirable as it will lead to affordable housing for the middle class, and facilitate labour mobility across India currently impeded by high and unaffordable rents," it said.
Real estate sector, which was already facing a multi-year slowdown, has been hit severely by scrapping of about 86 per cent of the old high denomination currency as housing sales fell by 44 per cent during the October-December quarter.

Developers have deferred their plan to launch new projects. However, the government has announced interest subsidy on low cost housing.