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Property prices could fall further as investing undeclared income in real estate becomes more difficult post demonetisation, says Economic Survey for 2016-17.
Demonetisation has hit property sales hard in last two months of 2016 as people were busy exchanging banned currency notes and secondary and luxury property sales came to a standstill as they include high amount of cash.
"...the weighted average price of real estate in eight major cities, which was already on a declining trend fell further after November 8, 2016. 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 Survey said.
Prices could fall further as investing undeclared income in real estate becomes more difficult; but tax component could rise, especially if GST imposed on real estate, the survey said.
"Demonetisation could have particularly profound impact on the real estate sector. 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, this type of tax evasion will also diminish," it said.
The survey said that follow up actions to minimise the costs and maximise the benefits of demonetisation include tax reforms such as bringing land and real estate into the GST, reducing tax rates and stamp duties; and acting to allay anxieties about over-zealous tax administration.
"These actions would allow growth to return to trend in 2017-18, following a temporary decline in 2016-17," the Survey said.
Property tax unexploited
The Survey said that there is a large potential in property taxes and it can be tapped to generate additional revenue at city level.
It said that evidence from satellite data indicates that Bengaluru and Jaipur collect only between 5-20% of their potential property taxes.
"The major factors contributing to poor realisation from property tax are the poor assessment rate, weak collection efficiency, flawed methods for property valuation, loss on account of exemptions, and poor enforcement," it said.
Based on an assessment of 36 cities, the 13th Finance Commission affirmed that by increasing the compliance to even 80-85%, the current property tax (Rs 4,400 crore) could be increased to as much as Rs 22,000 crore, it said.
It said Geographical Information System (GIS) technology based big data solutions can greatly help in assessing the total built-up area in a city and in estimation of the property tax potential and its valuation for each city.
