The Prime Minister recently announced the demonetisation of all 500-rupee and 1000-rupee currency notes. Are you still evaluating the impact of this announcement? Still wondering how an out-of-the-blue surgical strike on black money would impact your big money decision or the economy of our country? We all know why this change has been brought in: to curb all black money transactions starting from individuals to organisations and also to penalise the culprits who have been hoarding cash.

What does the crackdown mean to me?

black-moneySo does that mean you should rethink that decision of buying a house? The real-estate industry is expected to be the worst affected by this change. 

The industry is well known for its black money transactions. The sale of houses and flats go as high as 60 – 70% untaxed, with the evasions on VAT and stamp duty, and this number is magnified a lot more as the entire supply chain of the sector (steel, cement, sand, land purchases) are all big culprits of tax evasion. This means, in the long run, the house that you plan to buy would be a lot more expensive. The sector will be scrutinised by the Income Tax Department and it is expected to go through huge legal changes to tax these habitual offenders.

This also means that the house you plan to buy is expected to cost you 30% more. All this would not just affect the price of your house, but also the entire industry that contributes to complete your home; i.e sanitary works and carpentry would also cost you a lot dearer.

For example, The entire supply chain of the furniture industry which is known for tax evasion  is dominated by unorganised retail. 

  • Basic raw material, solid wood, which comprises of 70% of the total cost is transacted up to 80% in cash.
  • 70% of their sales are without tax

What does all of higher pricing translate into?

On an average, an individual before the crackdown

Age : 25 – 30 Yrs

Salary per annum: 20-45 lakhs

Investment on House: 80 lakh

Furniture – 5 lakhs 

Now after the crackdown, the investment rises by more than 35% after inclusion of direct tax – 30%, 14.5% of K-VAT and 12.5 % of excise duty.

With all the uncertainty around, and the fact that these capital assets (house) would cost you a lot dearer, it would make a lot more sense to rent the depreciating asset. Your furniture especially, the cost of which is expected to rise significantly, can now be rented online for as low as INR 1,000 per month.

The Rental furniture Space

The Furniture rental industry with its economies of scale and recycling assets makes the same asset available for rent for up to 10 years. This favourable cost advantage could make you have your desirable furniture for a lot cheaper. You save yourself the hassle of owning something that is losing its value from the moment you’ve bought it.

You do not have to shell out that huge sum of money buying furniture and instead you could invest them in financial instruments with higher returns. The rental furniture industry which contributes less than < 0.1% of the furniture sector revenue (15 billion $), is expected to be significantly benefited by this move.

The online furniture rental space would gain from the increase of money flowing into banks. And now with people being more tech-savvy, more transactions are expected to be cashless and online in nature.

Leave a Reply

Your email address will not be published. Required fields are marked *