There has been a long-running debate amongst industry experts related to whether Indian real estate should be linked to Aadhar. Some experts feel that the Aadhar link for Indian real estate could actually be a positive move as far as homebuyers are concerned since it may lower property prices to more attainable/affordable thresholds.
There have been reports which have clearly stated how the Cabinet note is ready for linkage of Aadhar numbers to real estate transactions. This may be implemented soon in the near future if it is agreed upon by all stakeholders. At the moment, some experts feel that the current scenario in the sector deserves a change when there are innumerable people who cannot afford to own homes in major Indian cities while there lie numerous unsold housing units across various projects. The actual housing demand is currently lower than the threshold where these unsold units are listed in terms of pricing.
How will the end buyer benefit from Aadhar linkage to real estate?
The linkage of Aadhar which is a key biometric identification tool, to real estate will be another good move towards cleaning up the sector as per several experts. This will limit black money being parked in real estate even further. The linkage will be positive for investors and buyers of Indian real estate since prices could down to more realistic threshold on the back of zero speculation. These prices will be at more manageable levels in comparison to current income levels.
Revival of property prices, as per several reports, was something that commenced early in the last decade and was based upon attractive investment returns hovering between 4-6% on an average. Yet, this turned into a widespread phenomenon since cheap funds in the Indian economy went into real estate investments. Cheaper banking funds were used for funding bigger real estate ventures and in the current scenario, this funding has simply been wiped out by several shell companies and promoters of real estate developers. These people have also invested in property under the names of their employees, relatives, service staff and other people.
Several people have opined that real estate prices in New Delhi increased by a whopping 15-20% or even more in some areas post the Common Wealth Games as the money that was siphoned off, eventually made its way into lucrative real estate investments. Whether this is true or not is a different story due to lack of circumstantial evidence related to the same. After the huge price increases between 2003 and 2010 when prices were rising almost on a monthly basis, real estate started propelling downwards from the year 2011 onwards as per studies. The overall inflation impact was approximately between 20-30% over the last few years and soon enough, real estate sectors witnessed trouble with the Benami Property Act, demonetization and the linkage of Aadhar to income tax returns among other Central Government reforms. These are factors which have taken the bite out of premium priced property since concealment of black money is tougher than before.
Here are some key points worth keeping in mind:
- For the average salaried professional/tax-payer, purchasing real estate has always been a complicated process.
- Many buyers have been compelled to convert white, hard-earned money into black money and then face penalties courtesy higher stamp duty. This is higher by a whopping 40% or more as compared to what is paid by those paying completely in black.
- The difference should start coming down between rentals and monthly EMIs with black money concealment becoming even tougher as per experts.
- EMIs are currently in multiples of rental amounts which often makes renting a more practical choice for young professionals as compared to buying in a market scenario where prices will take a long time to recover.
- Investors and buyers will know that linking Aadhar to ownership of real estate will naturally restrict property prices over the next few years.
- A large reason behind the rise in property prices is the sudden inflow of cash into the sector in the past decade.
- Buyers/investors should at least be garnering a return of 4-5% annually on real estate. You should divide your annual rent amount with the property. This figure has to be in the 4-5% ballpark for the investment to be profitable.
- The appreciation in capital that will eventually make your investment worthwhile is for the long haul.
- The Aadhar linkage will naturally make unaccounted-for income harder to keep hidden and every asset of an individual will be tied to this biometric identifier.
From the point of view of the average property buyer, this could be a landmark move, one that keeps real estate prices at more affordable levels. This will naturally spur higher sales figures in the short or midterm if that happens.