Influence of Less Cash Economy on Real Estate as Asset Class in India

The return on an asset class are a reflection of the country's macro-environment. Indian real estate sector had been a preferred alternate asset class largely due to positive macro-environmental factors like sustained GDP growth and Foreign Direct Investment. Indian real estate sector exhibited a unique characteristic wherein the primary as well as secondary sales transactions contained a high cash component to circumvent the high rate of taxation. In fact Indian real estate had gained the popularity as a preferred investment destination among masses due to its ability to consume and generate hordes of cash. The resultant cash economy was indirectly incentivized by the availability of high denomination currency notes which facilitated the transactions. The attractiveness of real estate as investment destination was also facilitated by the fact that through cash absorption, the sector could provide a safe heaven for the unaccounted wealth.Government of India, in a sudden move on November 8, 2016, demonetized the high denomination currency notes of 500 and 1000 Rupees. This move had a tremendous impact on economy due to the fact that 86% of currency notes in circulation were of high denomination. The demonetization forced the routing of all the high currency notes through the banking channel. Moreover Government of India imposed restrictions on cash withdrawal from the banks to discourage cash economy. This demonetization drive resulted in vacuuming of old high denomination currency notes from the circulation. Though a new currency note of 500 and 2000 Rupees were introduced by the Reserve Bank of India, the demonetization drive will result in limited availability of cash in the economy. The limited availability of cash will De-incentivize the efforts to evade taxes on real estate transactions through cash payments.The author aims to study the impact of this macroeconomic factor resulting in to less cash situation on the Indian real estate as a choice of alternate asset class among Indian investors especially in the residential markets of National Capital Region of Delhi. The study will include a survey of the perspective investors through structured questionnaire in the Indian real estate sector on their choice of asset class for future investments. This study will help the investors to assess the attractiveness of Real Estate in India as investment decision in the post demonetization era.