The demonetisation move has resulted in a huge decline in revenues of various states and the worst affected sector is the real estate space. According to recent data compiled by the Comptroller and Auditor General of India (CAG) from 13 states, the total stamp duty collection is down by Rs.2,015 crore during November and December 2016 compared with the same period a year ago. This indicates a combined average fall of 20 per cent in 2016 against 2015.
The real estate sector had been witnessing a slowdown for the past three years, but the slowdown induced by demonetisation has halted deals. Apart from lower demand of housing due to high prices, most transactions involved in this space are in cash (in the black-white ratio). In the absence of cash, the construction companies' sales came to a grinding halt.
Maharashtra is the largest property market in the country because of the financial hub Mumbai and other metro cities like Pune, Nagpur and Aurangabad. During the two-month period (November and December), stamp duty tax collection income of the state in 2016 has declined by 25 per cent to Rs 3,067 crore. The fall of Rs.1,036 crore in stamp duty collection in Maharashtra contributes roughly to a 51 per cent fall in all states.
With inventories piling up, developers have deferred their plans to launch new projects. Moreover, they have put on hold all construction activities at the site as they are unable to pay daily wages to labour due to cash shortage.
Smaller places like Bihar, Jharkhand, Chhattisgarh and Punjab have also suffered a major setback. Stamp duty collection is down by 41 per cent in Punjab followed by 39 per cent in Bihar, 26 per cent in Andhra Pradesh and 24 per cent in Chhattisgarh.
Arvind Subramanian, chief economic adviser, in the Economic Survey 2017-18, defended demonetisation, stating that the aim of the entire move was to bring down real estate prices.
“Real estate you do see a blip in prices, sales and launches and of course some of it may be adverse to the economy but in the long run, some of that could be good because aim of demonetisation is to bring down real estate prices,” Subramanian said.