India's uphill battle against black money in real estate
regulation bill.
Designed to bring greater accountability, transparency and prevent fraud and delay, the bill proposes appointing the sector's first national regulator. However, it will not have control over land deals, which is where illicit activity is widely believed to be rampant.
The bill is not going to help solve the issue of black money, said Anurag Mathur, chief executive officer of project and development services at Jones Lang LaSalle.
Black money is tied in or shifted through land transactions and the regulator will have no jurisdiction over that.
TAX AVOIDANCE
In the year to June 2012, about $6 billion, or 30 percent of total transactions in the property sector, were executed using black money, according to Liases Foras, a consultancy.
Real estate accounts for more than a 10th of India's $1.85 trillion economy.
The government says black money, a term widely used in India to describe undeclared funds, often meant to avoid taxes, can be present in every stage of a project from land acquisition to home sales.
For the purchaser of a 5 million rupee home like those in Ulwe, a developer might typically ask for 1.5 million rupees in cash while making out a sales agreement for 3.5 million.
With banks willing to lend up to 75-85 percent of the official sale price, the buyer will then need to fund anything from 45 to 60 percent of the total cost from savings, which is difficult for many salaried, middle-income househunters.
It is unfair on the buyers, said Kolhapure, who has put his search on hold in the
