Real estate prices in India. The white, the black and the in between money!

Image: news.in.msn.com

You like this nice 4BHK flat in a swanky neighborhood in India and connect with the seller for the final negotiations. The price he wants is, say INR 10,000 a square feet. You glance at your wife and are relieved that the money can be arranged and you have visions of your kids beaming with pride when they get their friends over. "But I want INR 4,000 a square feet in cash", the seller gently asserts. The world stops for a second.

The actual property transaction in this case is being done at 60% of the total value. Your own contribution and the bank loan are only eligible to cover this 60% of the value even if you are eligible for a far higher loan. The other 40% property value is non disclosed, payed for in cold cash (read black money) and it does not exist anywhere on paper. Its simply not there. Get the disadvantage? We will try and cover such transactions in finer details over time, but for now this is what we say.

The government has fixed circle rates for land across the country to collect revenue via stamp duty during registrations. However, the market rate in most cases is far higher than the fixed circle rate. This difference is generally transacted in cash. Speaking at the INDIA TODAY Conclave in New Delhi in March, PM Manmohan Singh had acknowledged the distortions in the land market caused by stamp duty. Once the developer has sourced land with a lot of black money involved, the only way to retrieve that is from you, the buyer.

We reckon that this trend will not stay forever. A lot of reputed developers have already inculcated all cheque deals into their system. Others will follow suit in the times to come. Those who don't, will probably have a hard time finding buyers. But then this is India, and people with sacks full of cash can show up riding bullock carts to make that down payment. And yeah, there are no receipts either. Gives us the jeepers!

2 comments:

TintuJuly 17, 2011 at 10:41 PM
It is only and only corruption money which is sustaining that is keeping the real estate prices up. If a politician or bureaucrat is making crores he is not going to buys dozens of cars, he will make investment in property because in India the property is never registered at the market price, it is just at 20-30% of the market value. Thus only the property can absorb black money. But the common man has to pay the real price, as once the standard price is set, he has also to pay the same price as to be paid by corrupt people.It becomes a vicious circle.
Crew@Ginger Chai July 17, 2011 at 11:27 PM
We completely agree with you friend. Sad but true. Do keep your valuable feedback coming. We appreciate it and it helps our future readers get a feel of things better. :)