Black money in Indian Real Estate - Will such transactions last forever?

We have raised our concern about black money in Indian real estate before in an article published on Indian Real Estate for Dummies. You can read it here.

Here are a few facts published in the Indian Express. These are for the year 2008.
"The investigation department of the ministry of finance has unearthed black money to the tune of over Rs 4,500 crore during the last financial year, with the quantum of such unaccounted money highest in the real estate sector at around Rs 2,000 crore."

Here is another opinion from dalalstreet.biz:

"As you think of various ways to evade various Taxes – Sales, Income, Service, Central Excise etc The Indian society and we Citizens are equal partners in Crime. For Example, just like how Real Estate Developers undervalue properties by bribing the Ministers and IAS officers, Traders – Commodity [Paint, cement, Iron, Plastic, Utensis Household items etc ] bribe Sales Tax Officers, and the saga continues with most businesses out there."

Well, these are just opinions. But with transparent private equity infusions from global markets and the Indian administration inching upwards to get rid of corruption (ever think about how big blokes from Reliance, Unitech and even the Telecom minister and his goons are in jail?), the time is not very far when people will shudder at the thought of black money. 

We reckon black money transactions will become a menace for individuals because:

1) With increased number of IT raids and monitoring, the land seller will have an issue accepting and storing large amounts of cash. These transactions will easily be monitored from the registrars' offices. Land sellers will inevitably start pushing for all cheque deals! Fine, there will be taxes but there will also be peace of mind!

2) Property valuations decrease dramatically when a large portion of the transaction is done in black money, commonly referred to as the 'cash portion' of the deal. Now imagine you invested in a property worth INR 50 lacs, of which you paid INR 20 lacs in 'cash'. What you have on paper is a property that is worth INR 30 lacs only. You, as an investor are a conduit to pass this property on to the end user. When the service class man comes up to you for the deal, he ain't going to offer you anything in 'cash'. The trend has already begun and it shall become the order of the day. Result? You are sitting on a stupid investment which has far less market value than you think!

3) Black money transactions have NO RECEIPTS. If you are duped, you can settle the account only in the other world with a couple of angels as witness. No kidding!

4) Rising standards of living mean more outflow of money from the bank for working class folks. As expenses rise by the day (kids, school, that fancy car and everything else you deserve), the 80% home loan is going to be much needed. If you, as a seller are expecting 30% of the property value to be given to you in 'cash', well, you know how far your car is going to roll after a few years!

Here is an anecdote. The dudes at Kodak Films thought they had the world figured out till the digicam came along and wiped them off the face of the earth. Think of how the oil producing countries must be s***ing bricks thinking about each new development in the hydrogen fuel cell technology. Advanced countries do most of their real estate transactions without any black money involved. We have taken to their ways and will be slowly but surely converted. The process has begun. 

So what is your stand? Still want to carry the big bags of cash and a heavy heart? Or a draft in your pocket and the head held high? The common Indian man would love you for being the second guy.

Cheers!

About the author

Rahul Mishra is a real estate professional who started his life as a salesman, selling homes in the city of Kolkata since 2001. He worked pan India in real estate organisations like MMG Realty, Bengal Shrachi, The Phoenix Mills and The Space Group before helping co found Pillars with a single objective - To make real estate easy!

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