Modi’s Bombshell? Why New-Economy Employees May Just Shrug


Since Prime Minister Modi dropped the bombshell on November 8th that the ubiquitous 500- and 1000-rupee notes would no longer be legal tender, all India has been abuzz. Minds have raced to grasp the implications. Near the top of the list of obvious questions is this: How will Modi’s bold stroke affect the property market?

The announcement has riveted the attention of the whole nation, but the shock waves will likely be felt more dramatically in some parts of the country than in others. In the real estate markets of white-collar job centers, the impact will probably be less of a big seismic event and more of a slight tremor.

Why? A long-term trend is underway in which properties are increasingly purchased by urban, salaried employees—and as a consequence, through aboveboard transactions. Today’s corporate employee is likely to purchase a home or investment property in a transparent manner: a down payment via cheque, with a bank mortgage for the rest. All this comes with a paper trail, clean and clear. Simply put, those who do not earn in cash, do not pay in cash. This contrasts sharply not only with the way that many of their parents or grandparents may have earned, saved, and invested, but also to the practices that are more likely to be followed by those in cash-centered industries.

White-collar, salaried employees are found today in all parts of India, but certain areas have much higher concentrations. Bangalore leads India in the new-economy job boom, whereas traditional powerhouse cities such as Mumbai and Delhi have a higher proportion of other types of income. It stands to reason that the property markets of emerging growth centers such as Bangalore would not be impacted as heavily by curbs on black money as those of more cash-driven cities.

What evidence supports this idea? The stock market offers an interesting data point: A day after the announcement, stock prices of prominent real estate developers across India tumbled by approximately 10%, but those with a concentrated presence in Bangalore dipped only half as much.

It will take weeks and even months to fully comprehend the effect of the government’s audacious measure. But as far as the property market goes, developers and buyers in India’s new-economy urban centers may watch from afar as their counterparts who have remained in a cash-based system find themselves scrambling.