Demons of Demonetization?
From the eventful evening of November 8th, 2016, the term of Demonetization has crept into our lives. Its implementation has been glorified to have created a huge inconvenience for people from all walks of life.
The regular citizen of the country struggled to get cash. Most of our precious time was spent in the queues outside Banks and ATMs. Many of the small and medium scaled establishments struggled to achieve their daily break even with their business models under question , especially those operating on wafer-thin margins.
If there is any chance to avoid cash transaction, people were ready to take it, even if it burned a hole in their pocket. More than money, Currency for once becomes sacred. People opted to buy groceries online or in large department stores that have POS machines so that they could avoid spending cash in their neighbourhood’s grocery store. With these changes in purchasing perspective, not only did the small and medium scaled businesses witnessed an unprecedented change but also are the invincible real estate players.
Real-Estate and the Parallel economy
One of the major sectors that have taken a hit is Real Estate and Construction. It is an industry where cash has been ingrained into the entire value chain from that of purchases to settlements to daily labor. Demonetization, while did hit out at the builders also have alarmed the workers, whose daily wages are usually paid by the contractor in cash. With demonetization, these payments have got indefinitely disrupted and in several cases these workers have become the subject of cash hoarding by the money launderers.
With this revolutionary change in the landscape, many mid-tier projects are either put on temporary hold or being delayed in progress to accommodate the subsequent developments. Despite the market predictions of downward trend in property prices, most of the sellers stay put, while there was a dearth of property buyers. While it may turn out to be too premature to comment on the prospects of the industry on account of this measure, one thing that is for sure is that it is going to rein in transparency into the industry gradually. Realtors after weighing in the potential risks of the circumvention and after lending an ear to the uncompromising stance of our Prime minister in chasing down the parallel economy,are having their fingers crossed. Most of them do wonder if the next googly from the government is indeed a mad chase after Benami properties.However, in such a case, we can definitely expect to see the market buckling to the imminent change.
Real Estate and construction sectors have a reputation of being a big bad world of black money, power and corruption. The sector is known not only to be volatile, but also unpredictable. It is also known to be an industry that always finds out its way despite any regulation for that it can game the system on account of its sheer market size and the interests of key stakeholders involved.However, despite all these, it shall be too premature to infer the effectiveness and influence of the act without us getting a peek into the numbers that shall start to roll out from government only by January end.
Real estate has been a corner stone for black economy for it a majority of the transactions were made in cash and thus stay unaccounted for taxation purposes.Demonetization has posed a challenge to this parallel economy with a majority of this unaccounted cash turning into worthless paper. Developers and resellers that otherwise insist homebuyers on having hard cash as a component of payments toward property purchases have turned wary and are now accepting a major chunk of payments through recognized channels. While demonetization did affect the real-estate sector in short term bringing in stagnancy with no buyers and takers, it does have some long term benefits for the industry as such.As the non-cash component size increases for the property purchases, size of home loan book can turn bigger with Banks and NBFCs. Further, banks being flush with cash, one can expect an imminent downward pressure in interest rates. This would not only allow access to affordable housing but also shall bring in transparency into the system. Builders and Realtors can eventually turn to be more responsible for the delivery of the projects for that majority of their cash flows from the lending institutions shall largely depend on the progress of construction. Further, with the buyer friendly provisions of the Real estate Regulatory Act, buyers shall be protected from delays in construction and handover.
Primary market, which involves the construction and sale of new projects, is well positioned to accommodate these regulations than the secondary market.The reason being a huge disparity between the registered prices and market prices that can dent the returns of the secondary seller of the property as he not only ends up paying higher registration fees but also have to account the gains for taxation. Developers of fresh real estate, on the other hand have a leeway to optimize their cost structures and thus better deal with taxation.
Demonetization and Rental market
There is one aspect of Secondary Markets of the Real Estate, where the brokers can find a little solace in these tough times – Rentals. Irrespective of the fluctuations in the market, people do need a safe place to stay .A majority of population still dwell in rented and leased spaces in urban areas giving way to a huge property rental market in these areas.
With demonetization, the rental market is also gradually expected to undergo a change. Earlier the deposit for renting a house, apartment or an office would require a payment of cash in advance. Similarly, most of the rent was transacted in cash. With demonetization, the mode of transfer for rent and rent deposits got altered significantly. Both the landlords and the tenants now prefer to opt for electronic modes for that at least it would ensure timely payments and collection. While one argument may sound that only the dearth of cash is propelling them to adopt electronic modes of payment for rentals and this shall turn back to normal once the regulatory uncertainties fade away. The counter argument on the other hand is that this act has atleast propelled the stakeholders to transact rent electronically, and made them well aware the benefits of cashless transfer and perils of cash handling. The cashless transfer would further assure the authenticity of transaction for both the landlords and the tenants.
Paymatrix is one such platform that reins in transparency of transactions between tenants and landlords, while offering much value and convenience to tenants and landlords. The platform facilitates timely payments and collections of rent and rent deposits while enabling one to pay rent and rent deposits on credit. Not only that, tenants by paying rent responsibly online on credit can build their credit histories. On the top of it, one gets to earn discounts and rewards on every payment. Landlords on the other hand can be assured of receiving rent on time and can effectively manage collections from multiple properties and issue rent receipts online. These kinds of platforms are bringing in much-needed transparency in the otherwise cash-dominated rental market.
Further information about the platform can be explored by visiting www.paymatrix.in
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