Indian Economy and the Real Estate Sector
The Indian economy is significantly influenced by real estate, with black money playing a detrimental role. The Ministry of Housing and Urban Poverty Alleviation (MHUPA)'s regulatory bill aims to mitigate the impact of black money in the real estate sector.
The Prevalence of Black Money in Real Estate
Many real estate developers demand up to 30% of the total amount in cash, indicating the presence of black money. This practice costs India billions in uncollected taxes annually.
Upcoming Legislation
The Indian government plans to introduce legislation to enhance transparency in real estate dealings. The bill will be discussed during the parliament's winter session.
Challenges and Doubts
The effectiveness of this legislation is uncertain due to the involvement of powerful politicians in illegal transactions. These politicians often facilitate corrupt practices within the real estate sector.
Corruption and the Regulatory Bill
Corruption is pervasive in real estate due to the need for builders to interact with various officials. This high-level corruption prompted MHUPA's head, Ajay Maken, to push for a real estate regulation bill. Maken hopes that this regulator will bring the desired transparency.
Expert Opinions
Jones Lang LaSalle's CEO of project and development services, Anurag Mathur, believes the regulatory bill will not fully address the issue of black money. He argues that black money is intertwined with land transactions, over which the bill has limited jurisdiction.
Impact of Black Money
According to real estate consultancy Liases Foras, nearly 30% of real estate transactions involve black money. This practice allows real estate to evade taxes, harming the Indian economy. Black money is present in every aspect of a project, from land acquisition to the delivery or selling of homes.
Example of Black Money Practices
For instance, a buyer may be asked to pay Rs. 2 Crore in cash for a property worth Rs. 6 Crore. The sales agreement might officially record a price of approximately Rs. 4 Crore. Banks lend up to 75-85% of the official sale price, forcing home buyers to fund 45-60% of the actual cost in cash, creating unfair conditions.
Proposed Solutions by the Regulator
If implemented correctly, the regulator could address these issues. The draft requires real estate developers to obtain authorization from the regulator and publicly disclose unit prices. The regulator also suggests that payments should be made through bank accounts dedicated to each project.
Hope for Success
The success of the regulatory bill depends largely on the involvement of corruption-free politicians. Only such politicians can effectively address the issue of black money in the real estate sector.