Impact of demonetization on India’s real estate sector

By Anita Tomer & Priya Chetty on August 18, 2017

A sudden ban on the existing Rs. 500 and Rs. 1000 currency notes shook the Indian economy and real estate sector which was evident after the third quarter of the financial year 2016-17. The announcement of demonetization and implementation of the Benami Properties Act for unregulated properties took place in the same year. Economists predicted the growth rate of the real estate sector to slow down more than ever as a result. The sector has been ridden with many challenges for the past few decades owing to lack of a uniform framework. Demonetization brought about many challenges but also alleviated some of these issues. For instance, the industry was predicted to face losses of up to Rs. 1 billion during the year, but the demand has been surprisingly steady due to many factors. This article is an attempt to review some of the benefits and challenges faced by India’s real estate sector due to demonetization.

Elimination of unsecured cash transactions

Post demonetization, there has been an increased transparency in the purchase and payment system of property. The paper or market value of most properties in India until recently was very less as compared to the cash or ‘black’ value. Since cash transactions were unregulated and unrecorded, it was almost impossible for the government to levy taxes on them. Real estate had become a heaven for people to park their unaccounted cash. However, a shift towards the cashless economy has brought transparency in the valuation system as people could no longer buy property using cash. Property prices which were skyrocketing earlier stabilized considerably. Moreover, it enabled the government to detect frauds more easily because it now kept a track of extremely large cashless transactions. All these factors led to a boost in consumer confidence after the initial shock subsided  (Rathore, 2016).

Low home loan interests due to demonetization

The immediate effect of demonetization was increase in cash deposits in banks. Banks which earlier encouraged customers to invest in deposit accounts suddenly found themselves in a huge influx. The next problem was to dispense the cash through various instruments. To encourage loans, the apex bank RBI to cut the interest rate on home loans to attract masses towards real estate investment. This resulted in increased demand for real estate in India. Also the lower interest rate scheme benefited property builders in resuming their projects which were discontinued due to lack of funds. One of the segments which benefited most from the demonetization drive is the affordable housing segment. Affordable housing came with lower EMIs due to various subsidies and became even cheaper after demonetization (Pai, 2016).

Improved stock market performance and FDI

The Indian real estate sector attracted all time high foreign investment of US $ 5.7 billion in 2016, despite demonetization (The Economic Times, 2017). Also the performance of real estate firms on the stock market Bombay Stock Exchange (BSE) improved by 50% during 2016-17, dispelling fears of ill effects of demonetization. The country is on track to becoming the fourth largest economy in the world with a growth rate of 7.5% by the end of 2022. A further increase in private equity from foreign and local investors and other institutional investments in the sector are certainly going to push for more transactions. The outlook for the real estate sector is thus positive.

Slow purchases due to contraction in cash

Post demonetization there was a severe unanticipated cash crunch in the economy and liquid cash became dearer. The demonetized currency constituted a total of 85% of the total money circulated in India at the time of demonetization. As people were forced to deposit these notes in their bank accounts all cash was flushed out of the system. This restricted the number of transactions they could perform in cash, hence purchase of property slowed down. Purchase of new property fell by up to 40% in major cities, while new project announcements fell by 11% immediately after demonetization (Pai, 2016). However the effect lasted only for a short while as buyers only deferred their purchase decision and not discard it.

Slow down in construction work

The liquidity crunch hit real estate from all sides, even the supply. Construction firms which dealt in cash until then suddenly found themselves unable to meet their operational expenses like wages and raw materials. Wages were until then paid only in cash as most construction workers did not have a bank account. The reform removed cash entirely form the system, therefore constructors also could not meet their expenses (Radhakrishnan, Selvan, & Senthil Kumar, 2017). Also they were reluctant to borrow money due to uncertainty in the market. Consequently, most of the under-constructions projects came to a standstill. Metros such as Delhi, Mumbai and Chennai were the worst affected after demonetization.

Low rental yield

Demonetization also left a huge impact on rental yields in India (Akhtar, 2017). The figure below clearly depicts the fall in rental yield in three popular cities of India post demonetization. This is because of the fall in prices of properties in general and the effect lasted only a few months.

Rental yields in 3 major cities of India post demonetization (Source: Akhtar, 2017) 
Rental yields in 3 major cities of India post demonetization (Source: Akhtar, 2017) 

Current scenario of launched and absorption of India’s real estate sector

As discussed, demonetization impacted the real estate sector negatively only in the short run. During the first quarter of FY 2017-18, demand picked up again, resulting in reduction of unsold inventories (Tandon, 2015). This is exhibited in the table below.

New Launches Unit Absorbed Wt. Avg Price (Unsold Units) Unsold Stock (Units)
Q1 2017-18 22,897 28,131 6,185 471,855
Q4 2016-17 28,428 28,472 6,290 487,043

Demand and supply of real estate in India for FY 2016-17 and 2017-18 (Source: Tandon, 2015).


  • Akhtar, F. (2017). Future of PE investments in real estate.
  • Pai, S. (2016). Demonetisation and its impact on real estate.
  • Radhakrishnan, S., Selvan, K. G., & Senthil Kumar, S. (2017). Impact of Demonetisation on Construction Industry. SSRG International Journal of Economics and Management Studies, 24–27.
  • Rathore, D. S. (2016). Anticipated impact of demonetisation on rental real estate market.
  • Tandon, S. (2015). Unsold property in NCR at five-year high – The Financial Express.
  • The Economic Times. (2017, March 1). 6 Major trends in Indian Real Estate in 2016. The Economic Times. Retrieved from

Priya is the co-founder and Managing Partner of Project Guru, a research and analytics firm based in Gurgaon. She is responsible for the human resource planning and operations functions. Her expertise in analytics has been used in a number of service-based industries like education and financial services.

Her foundational educational is from St. Xaviers High School (Mumbai). She also holds MBA degree in Marketing and Finance from the Indian Institute of Planning and Management, Delhi (2008).

Some of the notable projects she has worked on include:

  • Using systems thinking to improve sustainability in operations: A study carried out in Malaysia in partnership with Universiti Kuala Lumpur.
  • Assessing customer satisfaction with in-house doctors of Jiva Ayurveda (a project executed for the company)
  • Predicting the potential impact of green hydrogen microgirds (A project executed for the Government of South Africa)

She is a key contributor to the in-house research platform Knowledge Tank.

She currently holds over 300 citations from her contributions to the platform.

She has also been a guest speaker at various institutes such as JIMS (Delhi), BPIT (Delhi), and SVU (Tirupati).



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