Aim of demonetisation is to bring down real estate prices into the country, says CEA Arvind Subramanian

As the government presented its Economic Survey 2016-17 report on Tuesday it said that its demonetisation move is aimed at bringing down real estate prices into the country.

Union Finance Minister Arun Jaitley presented the Economic Survey 2016-17 report in Parliament on Tuesday. 

In a surprise move to curb black money, corruption and terrorism, Prime Minister Narendra Modi announced demonetisation of old currency notes of Rs 500 and Rs 1,000 on November 8 last year which resulted in massive cash crunch across the country 

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While speaking on the country's Economic Survey 2016-17 report, Chief Economic Adviser under the Ministry of Finance Arvind Subramanian has said that the government's aim to demonetise the old currency notes of Rs 500 and Rs 1,000 was to lower down prices of real estate properties into the country. 

"The survey said that the government's demonetisation move will lead to increased digitalisation, greater tax compliance and a reduction in real estate prices, which could increase long-run tax revenue collections and gross domestic product (GDP) growth," cited the official statement of the Ministry of Finance. 

According to the Economic Survey 2016-17, the weighted average price of real estate in eight major cities which was already on declining trend, fell further after the government's demonetisation announcement on November 8 last year.

Demonetisation 5: To max. benefits, min costs: fast remonetisation, bring real estate into GST, ⬇️ taxes, stable tax admin #EcoSurvey Ch3 pic.twitter.com/pckLuVDniz

— arvind subramanian (@arvindsubraman) January 31, 2017

The primary reason behind fall in real estate prices was due to demonetisation resulting in decline in wealth and shortage of cash supply hindering transactions into the sector. 

Moreover, it resulted in decline in the private sector wealth as some high denomination notes were not returned and real estate prices fell. 

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The survey has projected the private wealth to fall further if real estate prices continue to decline.

It has projected the demonetisation move to help the middle income group people to buy affordable houses on account of fall in real estate prices. 

"...an equilibrium reduction in real estate prices is desirable as it will lead to affordable housing for the middle class and facilitate labour mobility across India currently impeded by high and unaffordable rents," the Ministry of Finance said in a statement. 

The Economic Survey 2016-17 has forecast the real estate prices to fall further as investing in real estate will become more difficult. 

"Prices could fall further as investing undeclared income in real estate becomes more difficult; but tax component could rise, especially if goods and services tax (GST) imposed on real estate," the Ministry of Finance  said in a statement.  

In the past, much of the black money accumulated was ultimately used to evade taxes on property sales.

To the extent that black money is reduced and financial transactions increasingly take place through electronic means via the government's announcement of demonetisation, this type of tax evasion will also diminish, it noted. 

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