Black money falling flat

Black money falling flat
The Economic Times, August 17, Page 14

With most house buyers from salaried class, sellers are either accepting white money or running the risk of losing customers

Good news for property buyers. The obnoxious black money, or the unaccounted cash component, for buying a flat is slowly fading out with
buyers calling the shots in a market still being rebuilt after crumbling in last year’s financial storm.

Across Indian metros, more and more properties can now be purchased through the accounted money or white, thanks to the changed profile of the buyers and the government’s base price policy.

“The range of properties that could be bought through only cheque (white component) has increased as most of the buyers are salaried people,” says Yashwant Dalal, president of All India Estate Agent Association, the country’s largest association of property agents with over 10,000 members.

Today as much as 80% of the buyers in top cities such as Mumbai, New Delhi NCR, Bangalore, Chennai and Ahmedabad are salaried, whereas businessmen and speculative investors dominated the market just a year ago when the real estate boom was at its pinnacle, say industry experts.

This has forced sellers to either accept white money or lose the buyer in a market where demand still trails supply.
While almost all newly developed residential properties can be bought through 100% white money, now many resale properties too are available without the black component.

According to a prominent Mumbaibased developer, the black portion in payment has tremendously gone down in all properties that are below Rs 1 crore. “But for properties over Rs 1-1.5 crore buyers themselves demand that we take payments in black, as they cannot declare the total price of the whole transaction otherwise they could get in to trouble,” said the developer requesting anonymity.

Over the last one year, property prices dipped 30-45% and there were few buyers. Those coming into the market are salaried people who can support a loan but can’t afford black money.

According to industry experts, some sellers in Delhi and Mumbai still demand black component, especially where the selling price is steep compared to the price of the plot and development costs. But now buyers are snubbing them.

“Recently a seller of a resale apartment was asking for around 30% of the payment in cash (black) for a Rs 55 lakh apartment, but I told him straight away that it was not possible, I can pay little more but arranging for black is a big problem,” said Shravan Desai, a professional working in a multinational in Mumbai. In several places in Mumbai including the western suburbs, New Mumbai and Thane the percentage of the black component has come down from 40% a year back to 15% or even nil in many cases.

“If the buyer wants, he can bargain even for full white payment,” says Praful Joshi, a real estate broker based at Borivali . Also, many sellers now accept payment in cheque and are willing to absorb the capital gain tax. The increase in the white component is also a result of some income tax laws that brought more transparency into the property market, say analysts.

“According to Section 50 (C) of the Income Tax Act, one had to pay tax according to ready reckoner prices. If anyone pays below the current market price, he still has to pay tax as per the market rate,” says Vinod Sampat, a tax lawyer and consultant. An individual reinvesting the net proceeds from the sale of a house in another residential house is exempted from capital gains tax. This has given a big relief to many sellers who reinvest in real estate.