Realestate through out India is affected by Black Money and the problem with it for a seller is manifold. I will illustrate with an example. Let us say I have a property worth 4crores and we are say 4 people who own it. The pitiable fact is that the TN govt. has reduced the already pitiably low Guideline value by 33%. So that means the prime property (a land) by Guildeline value is worth only 1.15Cr, which means the remaining 2.85Cr becomes black. Now meaning of black is terribly different. One guy even said "Sir it is white money but in cash". Such transaction in the Demonetised world is a strict NO NO. However if the fellow gives 2.85Cr in Draft BUT DOES NOT REGISTER FOR ENTIRE 4Cr but only 1.15Cr, then the money received is taxable at highest tax slab (30% excluding surcharge). So even if 4 of us are bearing it, the 2.85Cr is taxed at around 86L totally for all of us. Now the 1.15Cr can also be taxed but Capital Index might protect it. For example in my case the Index using the latest base date of 2001-02 will protect the property to even 1.8-2Cr. In other words the Guideline value is lesser than the Capital appreciation of the property. Worse still each of us could have invested 50L in Capital Gains exemption bonds. This wont be possible.

In summary if 4Cr was sold in white entirely. Each of the 4 would get 1cr. Based on Capital Index the property would be worth 50L and so that will be untaxable. The remaining 50L of the 1Cr will be invested in bonds and so the entire sale will result in net zero tax. On the contrary with black money the seller will unnecessarily pay 86L tax.

Why is it happening? First the example I took is a bit extreme but true. It is for folks with ancestral property where the main worth is the land value held for say a generation or more. Second the Buyer is actually trying to convert his black money into white. That is a shame. In simple the genuine seller like in the example above who is trying to get 1Cr of money and FREAK OUT is being forced to behave like a criminal and also forced to pay tax. The black owning buyer who is the Criminal is getting a prime land which will appreciate and is also able to convert his black into white.

What is typical particulary in TN is, people dont understand the concept of LIVING. They dont want to enjoy their money. So they sell and then reinvest it again converting black to black. Is that the idea? That means most prime lands and buildings are not selling because the sellers either want to enjoy the money or will leave it for future generations. On the other hand those selling are essentially those who want to SKIM out some money and want to dump it back into the same BLACK RE INDUSTRY. So who benefits, the worthless broker, the black money guy who converts it into white.

The TN govt. idea of lowering guideline value shows the level of support for Black money in TN. With increased tax on registration, the buyer with black all the more wants to save on tax and wont register beyond guideline value!

Now look at the buyer of the 4Cr land. Of the 4Cr he only has 1.15Cr white. The 2.85Cr black means he has saved 87L of tax which he should have paid for earning it. Next he avoids the 10-15% Tax on registration. That means he is again avoiding another 40L or so. In net his 2.85Cr should have actually cost him another 1.25Cr in taxes which he coolly avoids and tries to get the seller to pay for. In simple he is misusing the honest buyer to dump his black and also pay his tax.

High time sellers stop selling in Black. Makes no sense, unless ofcourse you are part of the Black triangle of selling in black and buying in black and using say 5% for some silly reasons. Country wont progress this way and well infinite demonetisations wont correct Indians. "Thirudanai parthu thiruntha vittal thiruttai ozhikka mudiyathu" (If the thief does not reform, thievery wont stop!)

No point letting the buyer and his silly broker tell you infinite BS arguments talking about his need to pay the govt. tax as also his inability to get white money. Tell such a buyer that he is not fit to buy your fantastic property. Most of such sellers anyway dont need to sell the land except to try to avoid transferring it to future generations who may have to carry the burden to sell in their lives; maybe they are living in some foreign country. That is no reason to let some Black Money Criminal to get your property for a song. In the worst case if the Market value of your property in the above example is say 4Cr, then ask him for 4Cr + 86L the tax you paid + tax on this 86L, which means ask for 5Cr+. Again all this is for DD based transaction. If cash is given just walk away. Cash hoarding guys dont deserve to buy prime land!
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  • RE King tacitly admits that the value associated with richly valued property @4C and @5C cannot be enjoyed at the face value unless it is recycled in an another deal. It remains notional and cannot be fully enjoyed for legal consumption or legal acquisition of an another asset. Pity! Point I have been stressing for too long a time in this forum.

    In short, the currency of RE in such deals are tainted. And to hope that somebody will pay the tainted money value in white is delusional and unrealistic. It is quoted at 4C because of the funny cash attached to it. RE King assumes that is the real value of the property. Oh my....

    RE King kind of validates the point I have been saying in the Busting RE Myths thread - CAGR of RE end return is phony. Like illicit drug lords paying twice as much for a Miami property if you accept the suitcase with cash. To expect the same deal in white and if Miami property seller waits for such a buyer - will that materialize?