AAP got a great idea to fight against black money/corruption in Real Estate

[redhotiron2004]

Its all demand and supply.
It very much depends on the actual rate in an area.

Suppose, If the government would increase the price by 100% on 20L property then its circle rate would become 40L. Now 2 situations can arise depending on the actual price which might be lower or greater than the circle rate.
In the first condition, the demand would become low as people would be less willing to pay a higher price because of government valuation.
Here the owner would have to sell it at a loss. Which would keep the actual price still lower. And would increase revenues for the government.

In the second situation where the value is more. It would still depend on market dynamics. Just because the circle rate of an actual 50L property have gone up from 20L to 40L won't increase the actual price from 50L to 70L. Because people might not be willing to buy it at 70L. Here the seller have to limit his expectations according to the urgency in which he wants to sell that property in as always happens.

What it would mean is that instead of 30L black money. Now only 10L would be generated.

Any increase or decrease in the actual cost of any place would still be very much controlled by supply and demand curve. Which might become profitable for the seller at one place or vice versa at other place. Either way government revenues would increase in both conditions.

So, I dont feel its a bad move. Its simply a greedy move for more revenues.

 

[drkrack]

The amount black money invested to get permissions, pay kickbacks is enormous and comparable to the amount in white.
The builder or developer has to arrange that amount for every new project they invest. The bureaucracy & political kickbacks (which obviously cannot be given white) run on black money.


Builder will need that amount to be refunded for his next project. He will collect it from buyers. Even increasing the registration value won't work because of this. This Permission or License Raj (another Nehruvian policy) which drives the entrepreneur towards dealing in black.

Stop kickbacks or expose & punish the culprits ASAP in order to curb this menace. Black money will diminish automatically, once the kickbacks come down.

AAP as usual, doesn't seem that done their homework well. Delhiites have taken a big risk, but somebody has to...

 

[letmein]

Circle rates are revised periodically. They should be. I think the last time this was done was in 2012, so this was due. And about a year back, the rates were hiked for Noida too. Nobody made a hue and cry then. If you need to crap on AAP, do it for their other flaws, not just for the heck of it.

 

[drkrack]

Then it should be presented as a routine exercise, not as a Ground breaking idea to curb Black Money by AAP, if you expect Credit; be ready for Criticism .
AAP doesn't handle their own criticism very well, in a democracy being open to criticism is a must.

 

[Lord Nemesis]

^^ "AAP" and "Democracy" don't fit in the same sentence. AAP has always been and will always be a single man show. Did anybody see the TV ad they got made with tax payers money for glorifying Aravind Kejriwal (not the Govt or even the AAP party mind you). A lot of women, even party activists have complained in the past that AK and this aides have a low opinion of women and look down on them and this Ad aptly demonstrates that factor as well.

In any case, regardless of whether its AAP or BJP or any other party, this move has nothing to do with black money. if AAP is trying to portray as a a anti corruption move, then they are just trying to score some brownie points from god knows what kind of dumb idiots. AAP would never do any thing to truly attack black money most of which will always be in the hands of the common people. AK always knew right from the start that he will lose his vote bank if he ever does any serious move against corruption or black money. They will just keep using using the same BJP and congress style gimmickry.

 

[axis.meister]

The solution to black money in real estate is quite simple, don't pay or take black money. That is my policy. I refuse to buy property if the seller asks for black money and I refuse to sell for black money. Do you know that there is a high likelihood of people being swindled where there is black money involved.

There are also things a govt can do to put black money completely out of the circulation loop and make it not even worth the paper its printed on. But more than politicians, people won't like it at all, People want black money to be around. That is why nothing practical is ever done. You piss of the people and you can forget about getting re elected.

IT dept revised ITR forms to take in back account details and look how many people protested against it. While the way the IT dept went about it is kind of stupid, but regardless of how people mask it, the primary reason for people not liking it is that people don't declare their interest income or pay tax on it and this move would force them to.

The biggest hurdle to stopping corruption in this country is that people want it to be around. If I stand in elections and proclaim that I will take the corrupt politicians to task and get back black money from swiss accounts, People would cheer for me and may even vote me into power. If I tell them that I would take every one of them "common people" to task and make sure that they pay their taxes, not take bribes and what not, no one will vote for me. People want others to be taken to task, but if it ever comes to their own neck, nobody would like it.

Parties like AAP and even BJP thrive on this "we will get back the black money from swiss accounts" or "we will expose the corrupt politicians" gimmickry. Majority of the black money is within the country among the so called "Aam junta". This is all just hypocrisy.

Your solution is too simplistic, even naaive to some extent, but your analysis is fair and then you go on and lump AAP and BJP together and mess up the conclusion.

Please see the difference here, AAP is actually trying to tackle the "Aam Junta- Black Money" as you call it by introducing this measure. I fail to understand how you can conclude that they are still part of the same hypocrisy that BJP and CONG are?

This measure might not be the easiest solution, and it may cause inflation in short term, but in the long term it will lead to reduction in black money.

 

[Lord Nemesis]

^^ Oh please.. they are not tackling with any corruption or black money here. As somebody else said before, revising Govt valuation of real estate is a periodic process done every where. It doesn't really do anything for corruption or black money. It just gets more revenues for the Govt and that's about it. If that were indeed a cure for black money, AP and Telangana would not have any black money in real estate right now.

And yeah, if they are so serious about acting against corruption, let AK talk after he puts his daughter in jail. He himself told in a public meeting that his daughter tried to offer a bribe to a Govt official for getting her drivers license without necessary documentation and that the official declined. He was trying to brag about how bribery has reduced after he came to power, but does he not realize that

1. Not every official is necessarily corrupt. There are a honest few who would not ask for or take a bribe regardless of who is in power.
2. Attempting to offer a bribe to a govt official is an offence according to the law equal to demanding a bribe and that the person should be booked for it?

Didn't his daughter get away with her action because her dad is a CM? Isn't that abuse of power?
How about setting an example by walking the path himself instead of just talking about it?

As for stopping corruption, naive and impractical as it may sound, that is the only way to stop it. People need to go against corruption by walking that path themselves and not just talking about politicians or the black money supposedly stashed in swiss accounts.

The other approach is a total dictatorial regime, but in the long run even that just shifts corruption from one area to another or change its nature. After Hitler became the dictator, corruption in the country was supposed to have reduced considerably, but in the long run, dictatorships end up with the people in power abusing it and no body else having any power to abuse which give this perception of not having corruption.

In any case, a democracy is a breeding ground for corruption and such regimes never were and never will be corruption free. Look at India. People abuse their voting rights. They have one absolute power and they abuse it. It is utterly meaningless to talk about politicians when common people themselves want to retain their right to be corrupt.

Lastly, let me ask if there is any politician in India who has the guts to make the vast number of auto and taxi drivers pay their taxes at the risk of losing their vote bank? Does AK have the guts considering that he appeased the auto drivers in Delhi after elections by negating the rules that prevented them from refusing customers on arbitrary basis just because they represented a major vote bank who voted for him. Do you think these people would vote for him or any other politician who forces them to be sincere about their tax dues for instance?

My cab driver who takes me to office each day has a tax liability of 3 Lac per year and evades all of it since he is completely out of the tax radar. Imagine the amount of tax being evaded by thousands and lacs of such drivers in each city

 

[axis.meister]

I appreciate your intention, not taking or giving bribes is the most correct way to tackle corruption, It is just not possible in all cases. I have gone through it myself when I applied for an international drivers permit and was asked for a bribe. I refused to pay, and was made to run in between different counters of the RTO office for 3 days before I finally got the license. It cost me easily over 5 times the amount I was asked for as bribe in the lost working days and travelling expenses for the 3 days. I did not give in, but I can imagine scenarios where one would consider just forking out the bribe instead of doing what I did.
In Property deals in my experience people just ask 60-40 / 50-50 black to white ratio up front. That is just the fact. More realistic valuations would mean higher revenues to the government, and in the long term would mean lesser black-white jugglery, hence is a positive move in general.

 

[drkrack]

^^ Oh please.. they are not tacking with any corruption or black money here. As somebody else said before, revising Govt valuation of real estate is a periodic process done every where. It doesn't really do anything for corruption or black money. It just gets more revenues for the Govt and that's about it.

And yeah, if they are so serious about acting against corruption, let AK talk after he puts his daughter in jail. He himself told in a public meeting that his daughter tried to offer a bribe to a Govt official for getting her drivers license without necessary documentation and that the official declined. He was trying to brag about how bribery has reduced after he came to power, but does he not realize that

1. Not every official is necessarily corrupt. There are a honest few who would not ask for or take a bribe regardless of who is in power.
2. Attempting to offer a bribe to a govt official is an offence according to the law equal to demanding a bribe and that the person should be booked for it?

Didn't his daughter get away with her action because her dad is a CM? Isn't that abuse of power?
How about setting an example by walking the path himself instead of just talking about it?

As for stopping corruption, naive and impractical as it may sound, that is the only way to stop it. People need to go against corruption by walking that path themselves and not just talking about politicians or the black money supposedly stashed in swiss accounts.

The other approach is a total dictatorial regime, but in the long run even that just shifts corruption from one area to another or change its nature. After Hitler became the dictator, corruption in the country was supposed to have reduced considerably, but in the long run, dictatorships end up with the people in power abusing it and no body else having any power to abuse which give this perception of not having corruption.

In any case, a democracy is a breeding ground for corruption and such regimes never were and never will be corruption free. Look at India. People abuse their voting rights. They have one absolute power and they abuse it. It is utterly meaningless to talk about politicians when common people themselves want to retain their right to be corrupt.

We fools in India myself included , majority of them in Delhi, didn't realize it sooner
AAP = Aravind (ke) Admi Party.

I never doubted the integrity of Kejrival ji until he removed the intellectuals like Yogendra & Bhushan from the party in a disrespectful manner. Glorifying himself at the expense of exchequer was just as expected disastrous next move. AAP is becoming increasingly Aam (routine) party in a wrong way .

Only Best part is, other than some wrong decisions, no major corruption allegations so far. I'm still hopeful, as much as I am hopeful about Modi Sarkar...

 

[Party Monger]

Meh, understand black money. There are two things -

1) Creation of black money
2) Need to use/park that black money

Properties are a great place to park it since valuation is a personal thing. And the govt valuations are generally much lower than market rates so you pay very little tax. And on selling Capital gains sections have really good ways to not pay taxes. Basically you can increase your net-worth many more times by paying very little money by just buying more property. Then get a loan on them on market value and use it. Black money is now white money. The investment is also relatively safe cause its land.

If you increase stock valuation, everyone has to pay more taxes. That in one stroke reduces the lucrativeness of the whole procedure.

People like Nemesis saying prices will increase have no clue what they are talking about. Prices are determined on need/value. Its not determined by input costs like tax. This will infact help the market since removal of black money from the Realestate market to some extent will lead to lower prices where REAL consumers will be able to buy the land and use, instead of being used as a place to park.

Secondly, If you cant park the money effectively then it hinders the need to create it. In an honest system, it would be a significant risk. And sans ways to get out of it relatively safely, you'll find lesser people willing to do it. Hence more Tax.

To put it simply, increasing rates makes it not a lucrative option to park black money. Yes they might still do it, but it will be in far lesser quantity.

 

[moshel]

The problem with that logic is that increase in govt valuation of property would trigger an artificial increase in market prices as well. Happened in various districts of AP and Telangana (when it was a united state) when the govt valuation of land was increased. So it doesn't really do anything about the black money if that is the intent.

Same thing happened in Ahmedabad. When Govt. increased land prices, the market rate went up in proportion to the increase. Now the rates are high and still you need to give black money.

 

[asingh]

Black money and dishonesty and its exoneration is part of the Indian value system. It cannot be eradicated. People thrive and boast their accolades pertinent to these aspects.

 

[sharktale1212]

Meh, understand black money. There are two things -

1) Creation of black money
2) Need to use/park that black money

Properties are a great place to park it since valuation is a personal thing. And the govt valuations are generally much lower than market rates so you pay very little tax. And on selling Capital gains sections have really good ways to not pay taxes. Basically you can increase your net-worth many more times by paying very little money by just buying more property. Then get a loan on them on market value and use it. Black money is now white money. The investment is also relatively safe cause its land.

If you increase stock valuation, everyone has to pay more taxes. That in one stroke reduces the lucrativeness of the whole procedure.

People like Nemesis saying prices will increase have no clue what they are talking about. Prices are determined on need/value. Its not determined by input costs like tax. This will infact help the market since removal of black money from the Realestate market to some extent will lead to lower prices where REAL consumers will be able to buy the land and use, instead of being used as a place to park.

Secondly, If you cant park the money effectively then it hinders the need to create it. In an honest system, it would be a significant risk. And sans ways to get out of it relatively safely, you'll find lesser people willing to do it. Hence more Tax.

To put it simply, increasing rates makes it not a lucrative option to park black money. Yes they might still do it, but it will be in far lesser quantity.

Sorry to say this but you don't have the complete picture.
It is not only supply and demand or need/value, there is also something called "price propping". Try google and search for propping prices see what you get in auto suggest. I got this:

For me as a builder with years of "black money", it will very easy to prop up the prices, still collect the black money and not break a sweat. I don't have anything against AAP, but at the end they will bring in revenues for the Delhi government but black money? Not a chance.

 

[Lord Nemesis]

People like Nemesis saying prices will increase have no clue what they are talking about. Prices are determined on need/value. Its not determined by input costs like tax. This will infact help the market since removal of black money from the Realestate market to some extent will lead to lower prices where REAL consumers will be able to buy the land and use, instead of being used as a place to park.

I understand your compulsive need to defend your owner/master about every unrelated thing, but lets not talk impractical theory here. Can you tell me if there is any place in the country where property prices have not increased after the govt valuation was increased. I can say that in 3 states AP, Telangana and Bengal, where govt valuation was increased in recent years, property prices were jacked up after the increase. moshel mentioned another place where the same pattern was repeated. In fact it was even alleged here at the time that the valuation increase was done at the lobbying of some real estate biggies in order to inflate the prices. There were a few places in AP where the govt valuation was actually set higher than the prevailing market prices and suddenly, the market prices surged up.

I myself have a couple of plots that were together bought for 4.5 Lac and have now increased to 100 times in market valuation (over 4 crore) and that is in a town and not even a big city. In fact the value of land in that town is several fold compared to a city like Hyderabad and funnily enough there is nothing there to justify the value except that who ever needs land will have to shell out the cost whether they like it or not.

Land is a limited quantity resource and demand for it will always be there. Artificial jacking up of prices is pretty easy and normal in this sector. Do you know that in a single day, a piece of land in some obscure village area that was negotiated for 15 Lac the previous day evening was called off at the last moment the next day morning because the seller wanted 20L was then sold at 30 Lac by mid day and resold by the buyer for close to 60 Lac by evening and all just because of an unconfirmed rumor. That is how market dynamics in this sector works. But there are also many cases where market prices are successfully kept high even without a valid case for demand by stifling the supply. There would not be many buyers for property, but anybody who wants to buy there would still need to pay the premium cost. So, real estate in India does not always follow your traditional economics theories in the way they are meant to be.

Do you know how they jack up the prices with govt valuation? Lets say a piece of land was 20L by govt valuation and 50L by market valuation and lets say govt increases valuation to 40L. They will use the argument that since the govt valuation is itself increased from 20L to 40L, the market value is also higher or needs to be higher by roughly the same amount and they will not sell the land for anything less than 70~80L. Every potential seller picks up on it. Maybe some buyers will refuse to buy it thus reducing demand, but there will be no supply either at the lower rates because nobody will be willing to sell this piece of land for 50L anymore when they are convinced that its new value is higher by 20L.

Ultimately, some or the other genuine buyer who wants to buy land (not for investment or parking black money) ends up buying and they would have no choice but to buy it at the higher cost.

In all this, the potential for black money has not decreased one bit. Yes, it helps in getting more money into the govt treasury, but lets not paint it as some high and mighty move to reduce corruption because it doesn't.

 

[drkrack]

Poor KCR sir - Telangana CM : Couldn't take credit as Ground Breaking Idea by Telangana CM for Curbing black money in real estate business !!
Inspite of opposition from Realtors, holding his fort etc...

Or it should be made headlines

" AAP ground breaking idea against black money forces other states to follow the suit..."

 

[blkrb0t]

How has "the potential for black money has not decreased one bit"?

Let's go back to basics and handle it like an algorithm.

Let the value of land on papers be = 100 (I'm using this as a base value because it's easy to calculate percentages)
Say the tax you would pay for it = 20% of it = 20 (arbitrary figure)
Say the actual value of the land be = 200 (again, arbitrary figure for comparison's sake)
Black money created = 100, or 100% of the value of land on paper

Now, after increase in rates by the govt. by 100%

The value of land on papers = 200
The tax you would pay for it = 20% of it = 40

Further, two main scenarios arise. The demand goes down and sellers are forced to sell the land at same cost (best case scenario for govt.), or slightly above the 200 price now but not jack the priced by 100. The scenario mentioned by @Lord Nemesis: sellers would jack up the prices by the same amount (i.e 100 more) and sell it at 300. They can do one other thing too, i.e. increase their own rates by 100% (actual price would be 400), but that's too unlikely; don't you think?

Scenario 1 (best case scenario for govt.):
The actual value of the land be = 200
Black money created = 0, or 0% of the value of land on paper

Scenario 1.1 (price slightly above value on paper; let's say 250):
The actual value of the land be = 250
Black money created = 50, or 25% of the value of land on paper

Scenario 2 (price jacked up by same amount; i.e. by 100):
The actual value of the land be = 300
Black money created = 100, or 50% of the value of land on paper

(Why I'm using percentages for black money rather than the actual value itself? Because to have 100 units of black money the holder had to have 100 units of white money too. Now he needs to hold more white money to hold the same amount of black money.)

All the scenarios point at less amount of black money created. Even if the prices are jacked up all the way up to 290, less percentage of black money has been created. The only way to sustain the same potential to hoard and move black money as they had before was to jack up the price all the way up to 400. I don't think the demand will be that high at this price, but that's the only scenario where "the potential for black money has not decreased one bit," and it is the most unrealistic scenario of the lot.

Let me know if the maths is wrong, or I've misunderstood how the "real" real estate market works.

 

[Party Monger]

I understand your compulsive need to defend your owner/master about every unrelated thing, but lets not talk impractical theory here. Can you tell me if there is any place in the country where property prices have not increased after the govt valuation was increased. I can say that in 3 states AP, Telangana and Bengal, where govt valuation was increased in recent years, property prices were jacked up after the increase. moshel mentioned another place where the same pattern was repeated. In fact it was even alleged here at the time that the valuation increase was done at the lobbying of some real estate biggies in order to inflate the prices. There were a few places in AP where the govt valuation was actually set higher than the prevailing market prices and suddenly, the market prices surged up.

I myself have a couple of plots that were together bought for 4.5 Lac and have now increased to 100 times in market valuation (over 4 crore) and that is in a town and not even a big city. In fact the value of land in that town is several fold compared to a city like Hyderabad and funnily enough there is nothing there to justify the value except that who ever needs land will have to shell out the cost whether they like it or not.

Land is a limited quantity resource and demand for it will always be there. Artificial jacking up of prices is pretty easy and normal in this sector. Do you know that in a single day, a piece of land in some obscure village area that was negotiated for 15 Lac the previous day evening was called off at the last moment the next day morning because the seller wanted 20L was then sold at 30 Lac by mid day and resold by the buyer for close to 60 Lac by evening and all just because of an unconfirmed rumor. That is how market dynamics in this sector works. But there are also many cases where market prices are successfully kept high even without a valid case for demand by stifling the supply. There would not be many buyers for property, but anybody who wants to buy there would still need to pay the premium cost. So, real estate in India does not always follow your traditional economics theories in the way they are meant to be.

Do you know how they jack up the prices with govt valuation? Lets say a piece of land was 20L by govt valuation and 50L by market valuation and lets say govt increases valuation to 40L. They will use the argument that since the govt valuation is itself increased from 20L to 40L, the market value is also higher or needs to be higher by roughly the same amount and they will not sell the land for anything less than 70~80L. Every potential seller picks up on it. Maybe some buyers will refuse to buy it thus reducing demand, but there will be no supply either at the lower rates because nobody will be willing to sell this piece of land for 50L anymore when they are convinced that its new value is higher by 20L.

Ultimately, some or the other genuine buyer who wants to buy land (not for investment or parking black money) ends up buying and they would have no choice but to buy it at the higher cost.

In all this, the potential for black money has not decreased one bit. Yes, it helps in getting more money into the govt treasury, but lets not paint it as some high and mighty move to reduce corruption because it doesn't.

Are you insane man? Do you ever come above your biases and talk sense? Or do you just go on throwing bullshit like a troll behind a scree?

The cost of plots will increase cause the tax component will increase. Im saying the cost of the land wont increase or will probably decrease.

Land cost - Say 10000rs/sqft
stamp duty value - 5000
Tax say- 250 right now.
And after 150% increase Tax becomes - 750
-------------
So that's 10-15% extra money to shell out irrespective. That 10% makes it less lucrative to put in black money or make black money. Sure there remains a margin on the same to still exploit. But that margin is far less and the risk remains the same. So why would a person consider black money in such a transaction when the benefit will be much lesser.

What Lord Nemesis says would be true if the demand for land would be only from Black money holders or creators. What he is saying basically is that if the stampy duty value or Circle rate is 100% and market value is 130%, now post increase this ratio will carry on.(ie if circle rate increase from 1000 to 2000, market rate would go from 1300 to 2600) Which is totally wrong. And if the ratio doesnt increase the same way and say its diluted with just the tax amount then the amount of tax being paid is much higher in percentage terms!

Tax on normal money for most avg rich people with a family and good tax planning will come to about 15-20% on total income (not tax bracket) Now the tax on conversion from black to white through plots and realestate will be much higher and with lesser gain for same risk, people will be less inclined to buy.

You have to understand, anything with Tax is a game of Percentages. If im making 1000 black money and to convert it to white use property route and pay just 5%, instead of 15% im more inclined to take the saving of 100rs. Now if Im paying 10% tax and getting just a 5% saving after increase, Im getting a much lesser saving of 50 RS.

Why wont I pay 15% (50Rs more) directly directly to the govt and do what ever I want with the money instead of putting it in land? Do understand land comes with other hassles. You have to maintain it and there are far greater risks of it getting userped etc. Money in FDs is much safer and liquid with almost same return and ZERO hassle.

TLDR - Some smart asses might increase price with tax amount, but Percentage of Tax on the amount paid will be significantly higher which will demotivate people from buying .
ie - Tax on 100 right now - 5rs, Market value(inc tax) -105, Effective Tax rate ~ 5%
tax on 100 after increase 10rs. , Market value -110 (additional tax included) Effective Tax rate - 9.09%

The above is assuming that demand remains same.

Now that price is actually increasing, it will mean that the demand decreases.
Since demand will decrease, the prices will lower. Maybe not to original mark, but lesser.

Now include the people that will be demotivated to make or invest black money cause of higher tax and lesser tax saving through black money, The demand goes much lower, and hence the prices also go lower. So in a way, in a perfect scene, long term, the prices remain equal at the max or go down. Depending on how well other rules are followed and corruption in tax depts is tackled.