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Black Money Is Back In Real Estate

Mr. C.S. Sudheer | Updated On Thursday, April 27,2017, 05:40 PM
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Black Money Is Back In Real Estate

 

 

The Prime Minister of India made a very bold move on November 8th 2016. He demonetized 500 and 1000 rupee notes in the economy. This brilliant move crushed corruption and terrorism fueled by black money, hidden in 500 and 1,000  rupee notes.

As Citizens lined up at banks and post offices to deposit their old 500 and 1,000 rupee notes within the December 30th deadline, a certain sector was feeling the heat. For decades, real estate and gold was an excellent place to hide black money. No longer.....

Real estate deals in cash. If you want to buy a plot, apartment or a house, builders/sellers used to insist on payment in cash. You had to pay part of the money for the purchase in white and part in black.

 

Real Estate = Black Money

 

Cash is only a small component of black money in the economy. A lot of black money is hidden in gold and real estate. With the Government cracking the whip on black money, citizens with black money making speculative purchases were afraid to pay for apartments and land in black money. Property prices fell in many cities in India, helping you and other genuine buyers purchase dream homes.

Now, black money is slowing coming back into real estate. Want to know more on real estate? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice / education to ensure that you are not mis-guided while buying any kind of financial products.

 

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Is black money back in the real estate luxury segment?

 

Black money is slowly seeping into the luxury segment in real estate in India. The problem....It's just 6 months since demonetization and black money is slowly making a comeback in real estate....at least in the luxury segment.

The luxury/premier segment, accounts for 9 - 10% of the total real estate sector in India. Black money is coming back into apartments and villas, which cost over 3 Crores. If you buy a luxury apartment costing crores of rupees, you would have to make part payment in black and  part payment in white. This is simply replacing old 500 and 1000 rupee notes with new 500 and 2000 rupee notes.

Just a change in currency in black money.....Everything else remains the same. Do you think black money has entered the premier segment?

 

Black Money Is Back In Real Estate

 

1. Citizens used real estate to hide black money and dodge the bullets of demonetization

 

When PM Modi scrapped 500 and 1000 rupee notes on November 8th 2016, you and other citizens with black money hidden in these old notes, rushed to friends in need....The real estate brokers.

Let's say you had a lot of black money, hidden in old 500 and 1,000 rupee notes. The next day after demonetization....You approached your real estate broker who arranged for you to purchase an apartment with your budget of INR 90 Lakhs. You booked the apartment paying around INR 40 Lakhs in old notes in December and paid the broker around INR 10 Lakhs in commission for accepting the old notes.

So how does this work? You had booked the apartment in December 2016 just after demonetization, paying INR 40 lakhs in old notes. This is the black component of the purchase. The actual booking takes place after the Union Budget 2017-2018 in February,  to avoid any nasty surprises. The value of the apartment is shown as INR 50 Lakhs in the books. You would have to pay this amount in white as you have already paid INR 40 Lakhs in old notes. You have converted black money worth INR 40 Lakhs to white. You can sell this apartment after a few years for huge profits.

This is a popular tactic of citizens who buy real estate as an investment. To people around, it appears that real estate prices have fallen and there is no black money component. Don't you think so?

 

2. Black money makes a comeback in the premium and luxury segment

 

Before I answer this question, I would like to give you some information. Jewelers, restaurant owners, owners of pubs and bars get a lot of payments in cash. These citizens are flush with the new 500 and 2000 rupee notes and invest a lot of money in real estate.

Let's say you a restaurant owner, buy a costly property of INR 5 Crores. You would pay only INR 1.5 Crores for this property in white. This is the circle rate in the area. You have to pay the remaining amount in black. You can recover the money paid for the property by renting it. 

Don't you think black money is back in the premium segment of real estate?

Yes, demonization has destroyed black money hidden in cash. Now it's time to chase black money hidden in real estate. The Government could consider lowering stamp duty on property transactions to avoid tax evasion. Electronic registration of property transactions with say an identification number like Aadhaar,  would reduce the flow of black money into real estate. Be Wise, Get Rich.

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Article Author

Mr. C.S. Sudheer

Mr C.S.Sudheer is a management graduate. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.

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