Indian Real Estate Crashes As Prime Minister Outlaws Cash For Buying And Selling

Indian Government may have ended corruption—but sunk the local housing market, too.

By Jeff Vasishta December 8, 2016

If you fancy a second home in India, now may be the time to buy it. Prime Minister Modi’s audacious plan to take out 500 and 1,000 rupee notes out of circulation and reduce corruption has caused India’s housing market to collapse. Before, land and homes were mostly purchased with cash to avoid paying taxes. And now, since buyers’ money suitcases are only useful for sustaining fires, sales have sunk.

India’s Tribune newspaper estimated that the housing market may have dropped by as much as 50 percent. PropEquity, a real estate analytics and data provider in India, estimated major cities like Mumbia and Gurgaon to drop by 30 percent. For Indian expats in the US looking to add a family property in their homeland, the reduction could mean a possible boon if they are able to pay in cash, using a denomination that hasn’t been banned. The Wall Street Journal quoted prices at $29,000 (2 million rupees) for a new one-bedroom 650-square foot apartment in Ambernath, a affluent middle class suburb of Mumbai.

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For an economy that is riddled with corruption, cash is king. It’s estimated that an alarming 86 percent of cash in the circulation in the country is in the two banned currency bills. Many rural Indians especially don’t trust banks, so they have been hoarding their money, literally, in shoe boxes under the bed. And now they have until December 30th to exchange their savings for legal tender.

It’s estimated that by banning the two notes, Prime Minister Modi will be taking $200 billion out of circulation. Large amounts of exchanges will be liable to possible taxation and scrutiny from the government. Thus, many people are expected to let their hoards go to waste.

The whole real estate industry is rife with fraud. Payment for stamp duty and transfer taxes are often ignored in lieu of bribes. Developers curry favor with landowners through bribes. Sellers offer premium properties through bribes — all of it in cash, all of it off the books.

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In addition, developers borrow money at extortionate interest rates—as high as 22 percent from private lenders to build apartments, serving the debt through sales. With their profit margin slashed, home builders find themselves in a perilous position.

“They are in a chicken and egg situation,” said Samir Jasuja, chief executive of PropEquity, referring to builders in India, to the WSJ.

Flipping properties purchased from developers at pre-construction prices once they are completed has been a big business in Delhi in recent years. The developers are able to move the houses quickly and pay back their loans—while individual home buyers can sell at profit. While the property market was buoyant, it was a great business, with all deals being made in cash to avoid taxes.

“There is a lot of panic and shock among investors and builders. I see that in next 6-7 months, rates are going to go down. The transactions will be now more close to the circle rates. As of today, the rates have come down by 25% to 30%,” says Tarun Bhatia, vice-president of the National Association of Realtors of India, according to India’s

For buyers and sellers in India, the real estate party just came to a crashing end.

Jeff Vasishta



Jeff is a writer, husband and father but not necessarily in that order. As a music journalist he counts Prince, Beyonce and Quincy Jones amongst those he’s interviewed. He's also owned and flipped homes in Brooklyn, NJ, CT and PA.

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