Demonetisation has hit India hard. Opinion is divided across the length and breadth of the country. Some opine that it is for the greater good, while some say things could have been planned in a better way and that demonetisation is not going to solve any problem in the long run. Whatever the outcome, we cannot deny that this sweeping move by Prime Minister Narendra Modi will surely have a lasting impact on one sector in India and that is Real Estate.

Real estate as a sector has been one of the major dumping grounds for unaccounted money and counterfeit currency, also known as Black Money in common parlance. Whether it is procuring land parcels, obtaining clearances and approvals from Government authorities or even purchasing regular construction material, black money and corruption has flown through Indian realty seamlessly. As a common practice, even buyers had been paying a substantial black component while purchasing properties in the primary as well as secondary markets. Black money led to speculative practices which led to artificially inflated prices. An overheated real estate sector created a vicious cycle and brought inefficiencies in its wake.

In this report, we have analysed and quantified the impact of Demonetisation on the Indian residential real estate sector with a balanced and structured approach. With a move so powerful, the impact is bound to be far-reaching for the sector. Luxury Market and Plotted Development are found to be affected the most in terms of transactions, while Mid and Affordable segment would be least impacted. On the other hand, reduction in land cost and development cost would improve margins of the developers. This is likely lead to reduction in prices and bring about economic efficiency in the sector.


Coming back to the impact of demonetisation, our analysis shows that Luxury Market and Plotted Development would be affected the most. Mid and affordable segment will be least impacted. Luxury housing is going to take a big time hit as large transactions were happening in black. Developers catering to this segment are sure to face liquidity pressure. On the other hand, Land has always been one of the favourite assets to park black money. In the absence of black money, hoarders will not find it appealing to purchase land and demand will be dented. As a result, land owners are likely to be more willing to negotiate prices. We anticipate land prices to witness around 20%-25% price correction. Tier II and Tier III markets and perhaps some Tier I markets, where plotted development is rampant, are likely to be most affected by this.   Vol: 5
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Luxury Market

The assumptions taken for the impact analysis are:
City Luxury Mkt. Cost Bracket
MMR & NCR Above Rs. 4 Crs
Other Tier I Cities Above Rs. 2 Crs
Tier II Cities Aboce Rs. 1 Cr
City Luxury Mkt. Cost Bracket
Source: Liases Foras
Unsold Stock (Units)   Sales in last 1yr
Source: Liases Foras
Total Unsold (units) 11,95,465
Open Plot 97,713,(8%)
Luxury 45,647(4%)
Source: Liases Foras
Around 80-90% of the deals in luxury and plotted markets have 40-50% cash component the total cash in the system is estimated to be Rs. 30,103 Cr (21% of Annual Market).   Vol: 5
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Value Of Sales In Last 1 Yr
Source: Liases Foras
Total Value of Sales (Rs. Cr) 2,31,926
Open Plot 9,628 (4%)
Luxury 54,058 (23%)
Source: Liases Foras
Luxury Market – MMR and NCR are the most affected markets (Rs. crores)
Impacted Market Total Value of
Business done
Value of Business
done in Luxury
% contribution of
Luxury market in
business done
MMR 63,358 20,231 32%
NCR 39,502 7,525 19%
Bengaluru 39,699 7,208 18%
Hyderabad 11,420 2,930 26%
Chennai 15,202 2,876 19%
Pune 19,343 2,692 14%
Surat 4,831 2,408 50%
Other Cities 47,076 8,188 17%
Total 240,433 54,058 22%
Source: Liases Foras
For the luxury market, MMR and NCR are likely to be the most affected markets. In the tier I cities, Bengaluru and Pune have less than 20% value contribution to luxury sales. Amongst tier II cities, Surat will be highly affected as luxury sales form 50% of their business.   Vol: 5
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Secondary Market

We expect the secondary/ resale market to be seriously hit because many transactions in that segment happen in cash with sellers wanting to avoid long-term capital gains tax. Small-unorganised developers and other unreliable builders may be reduced to a miniscule percentage, as non-compliance has always been an issue there.

The housing market in India clocks in 8.5 lac units of sales every year. Out of this, 36% is dominated by the primary market, while 64% comes from secondary market and self-constructed houses.

It must be noted that 34% of the sales in tier I cities is from primary market, while this segment in tier II cities stands at 45%.

NCR leads the tier I cities in terms of secondary market contribution, while Pune has minimum exposure to the resale of self-constructed houses.
CITY Primary Annual
Secondary market & Self
Total Annual
Primary Market
Tier I Market
Bengaluru 39,284 70,663 109,947 36%
Tier II Cites
All India
Source: Liases Foras * *Based on registration and secondary research   Vol: 5
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Impact on plotted market

Plotted Market – Bengaluru & Chennai are the most affected markets (Rs. crores)
Impacted Market Total Value of
Business done
Value of Business
done in Plots
% contribution of
Plots in business
Bengaluru 39,699 4,560 11%
Chennai 15,202 1,150 8%
NCR 39,502 1,116 3%
Indore 2,707 775 29%
Chandigarh 2,793 397 14%
Lucknow 3,676 319 9%
Jaipur 4,769 233 5%
Other 132,083 1,077 1%
Source: Liases Foras
The plotted business segment in Bengaluru and Chennai will be most affected because the trend for the same is dominant in these two cities. Among the tier II cities, Indore and Chandigarh will be the worst impacted with a plot market contribution of 29% and 14% each.   Vol: 5
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Probable Price Correction Scenario 1 - 10%
Scenario 2 - 20%
Plotted Market - Primary 963 1,926
Luxury Market - Primary 5,406 10,812
Sub Total - Primary Market 6,369 12,737
% Reduction in Primary Market 3% 5%
Secondary Market 38,819 77,638
Total Reduction in Market 45,188 90,375
Total Market before Reduction 620,118 620,118
Market after Reduction 574,930 529,742
% Reduction in Total Market 7% 15%
Source: Liases Foras
We have conducted a sensitivity analysis and studied the impact of sales in the luxury and plotted market under price correction in 2 scenarios, such as 10% and 20%. It must be noted that luxury and plotted market experience inelastic demand. The reduction in prices do not result in higher transactions. Both these segments are investor-driven markets and price appreciation attracts buyers to these markets. Hence, we expect the market size for these two segments in the primary as well as secondary market to reduce in the range of 7% to 22%.   Vol: 5
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Value contraction across categories due to 20% price reduction (Scenario 2) (Rs. crores)
Cities Plotted Market Luxury Market Secondary Market
NCR 223 1,505 27,111
MMR 1 4,046 25,251
Bengaluru 912 1,442 7,632
Chennai 230 575 3,028
Pune 5 538 3,126
Ahmedabad 47 241 1,778
Total 1,418 8,348 67,926
Source: Liases Foras
Leaving aside extremes, if we pick the scenario with a 20% price decline, the market size contraction will be felt maximum in NCR, MMR and Bengaluru. 17% of the business in NCR is contributed by plotted, luxury and resale markets. The same share in MMR and Bengaluru stand at 15% and 14%, respectively.


While transactions in luxury and plotted markets are sure to be impacted in the short to medium term, we believe demonetisation will usher in an era of efficient pricing in real estate and increase involvement of end-users. It will also tackle deep-rooted issues of red-tape on the approval front. Developers will face reduced delays in securing approvals and this will result in faster completion of construction in the long-term.

We expect the price correction to happen over the medium to long-term as a result of considerable pressure on the market due to inventory overhang and other aspects. Due to reduction in prices, the number of transactions will increase, thus the value of sales will go up.


The straight outcome of 20%-25% reduction in land price is reduction in development cost that would increase the margin for developer. Prior to demonetisation, developers were not able to obtain significant margins, but after price reduction, developers can enjoy better margins. The example given here shows a sizeable increase in margin from 10% to 32%. In the best possible consequence of this, developers will be able to pass on the benefit to the consumers through reduced pricing. Increased demand on this account will lead to better sales realisations for the developer.   Vol: 5
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Financials Of Developer
Source: Liases Foras
  • Land prices expected to decline by 30%, as the cash component would reduce
  • Approval cost is expected to reduce due to reduced corruption
  • Both these factors will enhance the capacity of developers to reduce the prices especially in the affordable segment
  • The affordable housing projects would become financially viable within the city limits. This would result in higher consumption in the segment
  • New launches are expected to be at lower prices and in the affordable segment.

There is an expectation that banks may proceed to reduce interest rates. This augurs well for the end-user. Affordability will further increase by 11% in case interest rates reduce to 8.5%. Moreover, reduced pricing by developers will lure more end-users to the market.   Vol: 5
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Unfair and Speculative Market
Source: Liases Foras
Affordability has increased by 23% in the last one year due to price stagnancy and interest rate reduction.
Combination of price correction in affordable and mid segment and reduced interest rates, will bring efficiency in the market and stimulate demand from end-users. Pent up demand of the last three years will come in the market. Moreover, in the New Year, PM's housing loan interest subvention scheme will foster growth of affordable housing in India. The government’s decision to offer interest subvention of 3% and 4% for loans of up to Rs 12 lakh and Rs 9 lakh, respectively under Prime Minister Awas Yojana (PMAY) is most likely to benefit affordable segment in urban peripheries.

New launches are also expected to be at lower prices and in affordable segment. Despite correction, the net increase of the turnover of the market is anticipated to be around 8%-10% as the volume of sales in the mid and affordable segment may increase due to attractive pricing.   Vol: 5
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Briefly, this is the quintessential surgical strike – sharp and perfectly-timed! Not only will it usher in an era of efficient pricing in real estate and increase involvement of end-users, it will also tackle deep-rooted issues of red-tape on the approval front. Developers will face reduced delays in securing approvals and this will result in faster completion of construction in the long-term. This is a bold step in eradicating black money from the financial system and if it achieves the desired outcome, real estate will be the biggest beneficiary. Ultimately, real estate is one such sector that truly reflects the face of the economy. The more transparent and strong an economy is, the better it augurs for the health of the real estate market. The efficiency that will prevail in the market will outweigh the short-term negative impact of demonetisation on the real estate market. The worst hit Plots market Resale market Luxury market Small scale builders/ Unorganized developers   Vol: 5
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Founder and MD-Liases Foras Real Estate Ratings and Research Pvt. Ltd

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Editor & Director - Communication

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