Demonetisation: Cash-hurdle in stamp paper buys hits realty market; Gold prices surge

Currency pullback likely to lead to a decline in real estate transactions, while gold rally might continue.

Written by Sandeep Singh | New Delhi | Published:November 10, 2016 4:01 am
rs 500, rs 1000, rs 500 note, rs 1000 note, arun jaitley, jaitley, narendra modi, pm modi, 500 notes, 1000 notes, 500 notes demonetised, gold demand, real estate prices, notes demonetised, modi address, modi nation, pm narendra modi, latest news, rbi, reserve bank of india, black money Rush at a jewellery store in Pune on Wednesday. (Express Photo: Arul Horizon)

The government’s announcement that Rs 500 and Rs 1,000 notes in circulation would cease to be legal tenders has hit businesses and trades that are largely cash-based. Across the country, impact was felt at offices of sub-registrars as a number of those who turned up for registration of their properties were unable to go through with the transactions due to their inability to purchase stamp papers.

It was a different story in the bullion market. Gold prices headed northwards on a combination of factors — the clampdown on black money domestically and the election results in the US, with experts predicting that prices of the yellow metal will remain firm going forward.

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The sudden halt in registration of properties on Wednesday was felt across the country. A property dealer in a city in eastern Uttar Pradesh said, “As a daily routine, I went to the registrar’s office, but today not a single registration happened as people could not purchase stamp papers for the same.”

Stamp papers can be bought by individuals from either government office or from licenced stamp vendors and in most cases it is done though cash. “As the existing high-value cash denominations can’t be used to buy stamp papers, one is required to purchase through cheques. However, until the cheque gets clear we can’t get the stamp papers and the registration process cannot be carried forward,” said the dealer.

An official at the sub-registrar’s office in Gautam Budh Nagar confirmed that there was bare minimum activity on Wednesday, primarily on account of inability to arrange for the stamp papers.

Experts feel that government’s move will have a medium to longer term impact on secondary market transactions in the real estate. “The Indian real estate market, which is largely fragmented and unorganised, has had a reputation of being a safe haven for black money and therefore we expect to see impact on the sector. The impact is likely to be seen in secondary markets for all asset classes thereby making real estate more illiquid for a period of time,” said Anshul Jain MD — India, Cushman & Wakefield. He further said that it will lead to some amount of correction in real estate prices in markets where substantial speculative investments have been made by individuals through black money.

While there are widespread fears among real estate participants that the government’s move will lead to a decline in real estate transactions and prices, gold—the other asset class used to stash unaccounted income, saw a sharp rally on Wednesday. The price of standard gold in Mumbai jumped Rs 815 to end at Rs 31,145 per 10 grams from Tuesday’s level of Rs 30,330. The gains came in line with the global rally in gold as the spot gold rose close to 5 per cent to $1,337.4 an ounce during the day as investors sought refuge in safe havens such as Yen and Gold, after Donald Trump’s victory became clear.

“The markets had a knee-jerk reaction after Donald Trump took the lead. While this was just an event and will keep the markets volatile for a day or two, we expect gold prices to remain firm on account continuing high liquidity and reigning low interest rates in several developed economies,” said Kishore Narne, associate director at Motilal Oswal Financial Services.

Some feel that demand for gold is unlikely to come down. “While there will be fear among individuals that the government may again go for replacing high denomination currency in circulation going forward, there may be an increased trend towards keeping assets in the form of gold which is liquid and can’t be taken out of circulation,” said an industry insider.