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Tuesday, April 12, 2011

Stock_for_YOU GOI Set To Clean-Up The Real Estate Market-Pro-Market Reforms Likely

The government is keen to clean realty deals and wants to crack down on money laundering. It wants a closer look at the real estate market, widely perceived to be the biggest sink of black money in India. It will, therefore , widen the scope of India's anti-money laundering legislation to record all realty transactions with the finance ministry's financial intelligence unit (FIU).


Since in many places, including Delhi, property registration is a computerised affair, and it should be simple enough to connect all these servers to one maintained by the FIU. This will give the finance ministry more information on real estate registrations, and will also help to lower the amount of cash in real estate transactions.


There are several reasons why there is so much cash in the real estate market, and we need to address those urgently. First, in most places, the registration and stamp duties are set quite high as a percentage of the transaction cost, and property buyers keen to minimise these charges are tempted to pay partly in cash, said a source close to the development.


These duties should come down. Second, the value of urban and semi-urban real estate is kept artificially high by restricting the supply of such land. Land is classified as commercial, residential, farmland and so on and conversion from one use to another is a form of state/political patronage and, thus, of illegal gratification. This has to change.


In fast growing India, the demand for urban land is zooming. Swathes of land in every state must be identified where land-use change for creating towns is automatic, and can be transacted online after paying the required fees by individual landowners.


Finally, local authorities must auction public land in a transparent way. Online auctions of land will make the market bigger and less prone to cornering by unscrupulous middlemen. Official revenues will increase and so will the number of buyers who make cheque payments. If implemented together, these changes are certain to bring a lot of the money involved in the real estate market above ground. And take some business away from money launderers.

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Nothing in this article is, or should be construed as, investment advice.


Prasanth KS
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