Govt Banned Rs 500 And Rs 1,000 Notes; Industry terms it “watershed” moment in fight against black money

On 8th November 2016 Prime Minister Narendra Modi's suddenly take decision to address the nation and announced in the evening that people in possession of the notes of Rs 500 and Rs 1,000 will have to deposit them to bank and post office branches between November 10 and December 30, most of them rushed to ATM branches to withdraw notes of lower denominations.

All the Notes of Rs 500 and Rs 1,000 will become invalid from November 8 midnight so between November 10 and December 30, you have total 50 days to deposit the notes of this denomination you are in possession of at bank branches and post-office branches Banks to remain closed on November 9 to help the Reserve Bank of India carry out the process. ATMs would also not work on November 9 and 10 . All ATMs will have a withdrawal limit of Rs 2,000 until few days.

Modi, loved by his admirers for his radical way of functioning, said the measures would curb the disease of corruption and black money which have taken deep root in the system. “There is a need for a decisive war against the menace of corruption, black money and terrorism … Corruption, black money and terrorism are festering wounds which make the country hollow from within,” he said.

“Banks will be closed tomorrow (November 8). It will cause some hardship for you … Let us ignore these hardships … In (the) country’s history, there comes a moment when people will want to participate in nation-building and reconstruction. Very few such moments come in life,” Modi said in his address.

Notes of lower denominations of Rs 100, Rs 50, Rs 20, Rs 10, Rs 5, Rs 2 and Re 1, and all coins will continue to be valid. He also announced that new notes of Rs 2,000 and Rs 500 will be introduced.While money hoarders are likely to lose their sleep over the announcement, even his opponents were united in appreciating the bold move taken by PM Modi.

Why would this announcement augur well for real estate?

When you go to buy a property, the seller is most likely to quote the market price, which would be much higher than the circle rates. While market rates are the prevalent rates for a property, circle rate is the minimum reference rate below which a property cannot be sold. In fact, it is this rate based on which the buyer pays the stamp duty and the seller pays capital gains tax. Despite charging the market rate, your buyer would want you to state on papers the transaction took place based on circle rate; it helps both the parties to pay less in taxes to the government. However, to bridge the gap between the stated rate and the actual rate, the buyer will have to use the unaccounted money, commonly known as black money.

The small gains that common people like you and I make out of such transactions harm the country and the sector in ways more than we can imagine. For once forget about the damage it causes the government and its revenue collection. It impacts us even more adversely.

We, the common people, are the ones always chiding about the lack of transparency in the sector while at the same time facilitating deceitful dealings. We cheered the loudest when the government passed the Real Estate (Regulation & Development) Act, 2016, earlier this year. Why not do our bit to make the sector clean then? If I do not have Rs 20 lakh cash locked in my safe far away from the reach of the government to make up for the gap between the market rate and circle rate of the property I intend to buy, I might defer my purchase for a while. But this will, by and by, make the sector attain transparency. It has to be noted that questions about the transparency have been behind a slowdown that has been ailing India’s real estate sector.

As the gap between the on-paper and in-reality transactions ends, it will also clear a lot of haze that has developed around the property prices in the past decade.

A cleaner real estate sector would also catch global investors' attention, and attract more foreign investment in the country. This could be greatly beneficial for a sector that has been on the verge of cash starvation in the past couple of years.