BENGALURU: The secondary real estate market in Bengaluru is reeling under the burden of demonetization, with transactions down by as much as 60 per cent in November compared with October, according to several brokers who deal in resale of properties. “In Bengaluru, eight out of every 10 transactions in the secondary market have a large cash component of at least 20% of the deal size.With scarcity of cash, 60% of the transactions have disappeared,“ Abdul Suhail, who runs Coldwell Banker SamOne Realty , said.
Suhail, who deals in properties worth more than Rs 1 crore and focuses on Sadashivanagar and Hebbal areas, said he used to sell about 1-2 apartments/houses per month till October. “Out of 18-20 lead generations, 1-2 used to be converted into a sale. This month, no lead has come my way ,“ he said. Three of Suhail’s deals that were at the agreement stage have been cancelled. In the primary real estate market (where buyers buy directly from builders), the use of cash is limited. But cash plays a dominant role -sometimes up to 60% -in resales as the seller wants to save on capital gains tax.
This tax can be as high as 30% if the sale happens within three years of purchase. Beyond three years, it is 20%. The only way to avoid this tax is to use the entire gain from the transaction to buy another house within two years or construct one within three years. For buyers of property , the attraction of cash deals is they can report a lower value to the property registration office and reduce the stamp duty burden. In some cases, the cash component goes up to 60% of the sale value.
For Waquar Ahmed of Ahmed Realty, who sells about 3-4 properties a month, there has been no sales this month, with clients cancelling five deals. “At least 60% of my clients are from business families who have easy cash but cannot use now. They are now seeking heavy discounts, which is not possible. Sales are in a limbo,“ he said. Ahmed, who sells properties around MG Road and Richmond Town, among others, sees no improvement in sentiment at least till the middle of next year. “My other clients, who are mainly from the IT sector, have adopted a wait-and-watch approach.“
Prashant Sambargi, partner at property brokerage Mars Realty , said seven of his deals that were in final stages have been cancelled.“The fever among builders has turned into malaria.With little cash flow, builders will find it hard to execute projects,“ he said. Poornachandra Shankar, chief executive of property brokerage Square Capital Assets, however, said his company is yet to see a drop in sales, though he added clients have deferred registration of their properties.
Real estate data and analytics platform PropEquity expects secondary sale prices in 42 major cities in India to drop by up to 30% in the next 12 months. “There will be almost complete stop in resale in the coming weeks,“ CEO Samir Jasuja said in a report on Thursday . He added it will take some time for the real estate sector to fully absorb the move.
Credits ET Realty