Economic Survey: Property Prices Fell Due To Note Ban; May drop further


Highlights
  1. Property prices fell due to cash crunch following demonetisation.
  2. Tax component could rise, especially if Goods and Services Tax, slated for rollout in July, is imposed on real estate.
  3. An equilibrium reduction in real estate prices is desirable as it will lead to affordable housing for the middle class.

New Delhi: Property prices fell due to cash crunch following demonetisation and could decline further as investing undeclared income in real estate become more difficult, says the Economic Survey.

“Demonetisation particularly could have a profound impact on the real estate sector,” it said in an analysis on the impact of the note ban announced on November 8.

On short-term effect on the sector through December-end, the Economic Survey 2016-17 said that “prices declined, as wealth fell while cash shortages impeded transactions”.

Talking about the likely longer-term effect, the pre-Budget document tabled in Parliament 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 rollout 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.

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