Indian real estate faces trouble after crackdown on ‘black money’
Indian real estate faces trouble after crackdown on ‘black money’
Long, angry queues around the country
It’s the end of an era in India as Prime Minister Narendra Modi seeks to undermine ill-gotten wealth in the subcontinent by incommoding the very medium that props it up: “black money.”
Indian property prices could fall anywhere between 10 percent and 20 percent as a result of the crackdown, with an untold effect on land values, The Economic Times reported, citing experts from brokerage CLSA Asia-Pacific Markets.
Such grim expectations came to the fore after Modi, in a surprise announcement on Tuesday, called for the withdrawal of banknotes in denominations of INR1,000 (USD15) and INR500 (USD7) from circulation. The government reasoned that the move would truncate the practice of stashing away wealth in cash, a market equivalent to 30 percent of the gross domestic product that has eluded government coffers.
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“Since black money played a role in real estate transactions, this crackdown is very likely to hurt the real estate market, which is already reeling under high inventory in top tier-cities such as Mumbai and Delhi,” Sonal Varma, an economist at Nomura Holdings, told the Times.
Apart from real estate, black money is usually deployed to investments in gold and payments for bribes.
The shock government plan has brought out long, angry queues at banks around the country, where citizens can exchange INR4,000 (USD60) per day for two weeks until the bills are “extinguished” from circulation. This puts the onus on individuals with vast sums of unaccounted wealth to make the necessary tax declarations as soon as possible.
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Source: Property Report