Economist R Nagaraj Debunks Myths About The Effect of Demonetisation on the Real-Estate Sector

12 December 2016
Courtesy R Nagaraj
Courtesy R Nagaraj

On 8 November 2016, Prime Minister Narendra Modi made an announcement declaring that notes of Rs 500 and Rs 1,000 would not be legal tender as a part of his government’s policy to clamp down on counterfeiting and black money. It has been widely reported that this policy would directly impact the real-estate sector, which typically witnesses a significant amount of transactions that are made through cash to avoid taxes. The Economic Times also reported that demonetisation would lead to a reduction of interest rates on housing loans, and consequently, to an increase in investment in the sector in the long-run.

R Nagaraj, an economist and currently a professor at the Indira Gandhi Institute of Development Research in Mumbai, is sceptical about long-term effects of the policy on the sector and its effect on interest rates. Nagaraj is a macroeconomic analyst who has studied the impact of black money on real estate. He has also been a guest professor at the Indian Institute of Management Calcutta and the Woodrow Wilson School at Princeton University. On 6 December, Kedar Nagarajan, a web reporter at The Caravan, spoke to Nagaraj—over email and a conversation on the phone—about the impact that demonetisation would have on the real-estate and housing industry.

Kedar Nagarajan: What short-term and long-term impacts will demonetisation have on the real-estate and housing sector?

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    Kedar Nagarajan is a web reporter at The Caravan.

    Keywords: economy real-estate finance Cash demonetisation black money Housing