Realtors continue to accept bookings with part payment in the form of cash, and cash changes hands in resale property deals too.
While demonetization may not have been good news for the real estate industry in Mumbai in terms of sales, transparency did become the new buzz word, and a year on, a greater number of realtors insist on 'all white' payments. Industry insiders, however, reveal that circulation of black money continues in the property business. Realtors continue to accept bookings with part payment in the form of cash, and cash changes hands in resale property deals too.
Meanwhile, the sluggishness in the real estate market persists a year after momentum in the sector came to a grinding halt. Along with demonetization, however, the contributing factors for this are RERA and GST. While the real estate industry was trying to recover from the impact of demonetization, two more policy decision impacted the industry – the Real Estate (Regulation and Development) Act 2016 and the Goods and Services Tax Act.
Builders are critical about the impact of demonetization. "In the past one year, our sector has witnessed a sea change as far as regulatory policies are concerned," said Rahul Shah, CEO of Sumer Group. "The real estate industry was already under tremendous pressure, and demonetization just added to the woes. Prices have remained stagnant with little demand from buyers and investors in anticipation of a price drop or discount from developers. This period also saw a significant rise in incremental costs owing to subdued demand."
Experts feel that the next 12 to 18 months are likely to be the 'under observation' period for the sector. They advise industry stakeholders to use the period to reorient businesses in line with the new changes.
"Time and again, back-to-back policy regulations reinforced a slowdown in an already sluggish market," said Shishir Baijal, chairman and managing Director of Knight Frank India. "The residential sector in particular has been affected the worst. New projects dried up, home sales slipped to newer lows, and piles of unsold stock at stacked up"
Small time developers feel the pinch more than organized and big developers. A developer operating in the suburbs said, "Profit margin has come down to 12 to 15 per cent. Sources of cash dried up and the the real estate market runs heavily on it. Also, buyers are expecting prices to come down, and hence are not investing. Small developers are getting into joint ventures with big developers as most of us were dependent on direct money coming from home buyers. Many have even exited the market."
Sources say that post-demonetization, the cheque-to-cash ratio has reduced, but builders have been either asking for or accepting cash at a reduced percentage – earlier, developers asked for cash payments of around 40% to 45%, it now at 25%.
At times, it is the buyer who wants to dispose off their own cash-in-hand and requests the realty company to take part payment in cash. As is the norm, the deal value is under-reported in the sale agreement or sale deed when there are cash transactions, so that black money remains in circulation.
"Corruption has not stopped within government offices or with local political leaders," said an industry player. "We are still asked for 'gifts' to move our project file ahead and secure mandatory clearances." In order to meet this demand, developers rely on black money from customers. If they do not honour the demand, clearances get stuck and local political leaders too raise hurdles.
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