Real Estate

‘Re-sale property market still being used to launder unaccounted wealth’

Anil Urs Bengaluru | Updated on November 27, 2019 Published on November 27, 2019

As new projects dropped, overall unsold stock as on Q3 2019 stood at 6.56 lakh units across the top 7 cities. Representative image   -  The Hindu

Three years after demonetisation, the battle against unaccounted wealth is only half-won. The secondary or resale residential real estate market still accommodates black money. In the re-sale market, about 30 per cent of the transaction value can still be paid in cash , according to Anuj Puri, Chairman, Anarock Property Consultants.

“While a growing number of buyers and sellers prefer official payment routes as a matter of principle, many still use the re-sale property market to launder untaxed cash,” said Puri.

The primary sales market in Tier 1 cities offered little scope for use of unaccounted wealth in property deals, he said.The reducing gap between the market value and circle rates in Tier-1 cities had limited the scope for use of black money in the primary housing sales market. However, in many tier 2 and 3 cities, the circle rates were much lower than the existing market rates.

According to Puri, "In fact, in some markets in NCR, the circle rates are higher than the market value of properties." For instance, the average circle rate for a property on MG Road in Gurugram is approximately Rs 11,205 per square feet, while the market value is lower at Rs 11,000 per square feet. Likewise, in DLF City Phase 4, the average circle rates are almost on a par with the market value, at approximately Rs 10,830 per square feet and Rs 10,800 per square feet respectively.

The circle rates, guidance value or ready reckoner rates are the minimum values set by a state government, below which a property cannot be registered.

“Demonetisation in November 2016 sent the Indian residential real estate – till then a preferred laundromat for unaccounted wealth - into an almost terminal tailspin,” said Puri.

While the trend in MMR and NCR – cities notorious for black money in real estate – has eased considerably in primary sales, their resale property markets still see cash components. As much as 20-25 per cent of the total resale property cost can still be 'adjusted' with black money. On the other hand, in cities such as Bengaluru, Pune and Hyderabad, the prevalence of transparent payment routes, even in the resale market, are much higher.

Resale market

Unlike the primary sales market, the resale market still lacks strict regulation, making it easier for buyers and sellers to use cash in the transactions. Also, the primary sales market involves developers with a reputation to protect - a resale property transaction involves two individuals. The pricing of resale properties also lacks transparency.

In the case of direct sales by developers, there are readily available pricing benchmarks. In the secondary sales market, on the other hand, a seller can inflate the price of a property based on location, added features, etc, without stating as much in the books.

Published on November 27, 2019
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