Hit by demonetisation, slowdown in real estate continues a year later

Pune city.

Soon after the central government withdrew Rs 500 and Rs 1,000 notes from circulation last year, the real estate sector was one of the first ones to directly experience the effects of demonetisation. In November 2016, in the wake of the note ban, the state had registered about 1,20,022 sale deeds - a new low for the real estate sector.

The recent lukewarm sales in the sector, during the festive season, did not bring much cheer either. By the end of October 2017, the state had recorded registration of 12,54,075 documents, while last year, the cumulative October-end figure was 12,88,527 registrations.

This year, the real sector saw better sales in April, May and June, mostly because of the various schemes unveiled by the builders to reduce their stock, before the implementation of the Goods and Services Tax (GST).

Liquid cash and the real estate sector have been intrinsically linked, as both buyers and sellers often prefer cash, at least as part of the payment. While black money has often found its way into the sector in the past, the government had hoped that this trend would come to an end due to noteban.

Speaking on the condition of anonymity, a property dealer said in the past, about 30-40 per cent of real estate deals were sealed in cash. "Builders insisted on part payment in cash, which has largely stopped now," said the dealer.

This year, the sector has also seen two major reforms, MahaRera and GST. While MahaRera is supposed to be the regulatory authority for the sector, GST is meant to usher in uniform taxation for the sector. GST, in particular, has replaced the 5.5 per cent tax by a 12 per cent tax slab, say realtors. "Even with set-offs, about 3-4 per cent of the tax is passed on to the end consumer…," said another realtor.

The affordable housing sector seems to have suffered the most, with many buyers deciding to postpone investments in real estate.

Nitin Kulkarni, director of Vastushodh, a Pune-based realtor firm specialising in affordable housing, said, "Most of our customers are either small time entrepreneurs or blue collar workers… many have deferred their plans for investment". Kulkarni's firm has seen a dip of about 35-40 per cent in sales in the last one year.