The sudden ban on the use and circulation of Rs500 and Rs1,000 notes i.e. demonetization in November 2016, led to a severe cash crunch in the Indian economy, resulting in a huge blow to the realty sector. People were forced to deposit these notes in banks with the cash being taken out of system, which adversely impacted property prices. However, the effect lasted for a short period, as buyers had postponed their purchase decisions.
Further, with the fading effect of demonetization, implementation of RERA, and provision of subsidies for affordable housing, the markets have started to witness positive sentiments. Moreover, interest rate cuts due to surplus liquidity post demonetization have resulted in an enhanced demand for real estate in India. The Nifty realty index jumped ~112% during November 09, 2016 - January 11, 2018.
However, the subsequent implementation of GST, long-term capital gain tax (LTCG) and an increase in interest rates have negatively affected the realty sector. Furthermore, the transition in the accounting method from IND GAAP to 115 IND AS in the sector has created substantial uncertainty regarding the classification of short-term borrowings and customer advances. Hence, the Nifty Realty index plummeted ~28% over January 11, 2018 to August 07, 2018, which has made the investors adopt a wait-and-watch approach.