Why de­mon­eti­sa­tion alone can­not suck out black money from prop­erty mar­ket

WHAT NEXT? Ra­tio­nal­is­ing tax struc­ture, stamp du­ties can be per­ma­nent so­lu­tions

Hindustan Times (Chandigarh) - Estates - - FRONT PAGE - Van­dana Ram­nani van­dana.ram­nani@hin­dus­tan­times.com

It has been nearly two months since the de­mon­eti­sa­tion drive hit the real es­tate sec­tor, hith-erto con­sid­ered a safe haven to park black money. While the move is am­bi­tious, ex­perts say the note ban is merely the be­gin­ning and not an end of the war on un­ac­counted-for in­come. It is also not a per­ma­nent mea­sure to en­sure that ill-got­ten funds will not find their way back into the sys­tem.

A per­ma­nent so­lu­tion in­volves ra­tio­nal­is­ing the tax struc­ture and stamp du­ties.

“The note ban is a fu­tur­is­tic step rather than a ret­ro­spec­tive mea­sure. The gov­ern­ment­ment needs to en­sure that cir­cle rates re­flect the mar­ket re­al­ity and are re­vised fre­quently. Cir­cle rates should evolve as per ac­tual mar­ket prices. Long gaps in re­vi­sion kill the ob­jec­tive of cir­cle rates. Prop­erty mar­kets should not fol­low cir­cle rates. Rather, cir­cle rates should re­flect mar­ket rates,” says Sa­man­tak Das, chief econ­o­mist and na­tional di­rec­tor - re­search, Knight Frank (In­dia) Pvt Ltd.

Over the years price volatil- ity has not had much im­pact on cir­cle rates, which have never shown any dras­tic changes. Das sug­gests that state gov­ern­ments set up a ma­chin­ery to un­der­stand the mar­ket bet­ter, go for fre­quent re­vi­sions of cir­cle rates to en­sure that buy­ers and sellers pay stamp du­ties and the ex­che­quer gets rev­enues.

Mea­sures in iso­la­tion can­not work. In­cen­tives should be given to peo­ple who pay in white and reg­is­ter prop­er­ties. If the cir­cle rate is ` 5,000 per sq ft and the mar­ket rate is ` 7,000 per sq ft, most peo­ple pay ` 3,000 per sq ft in black to save on reg­is­tra­tion costs (cal­cu­lated on the ba­sis of prop­erty price paid). “A more ro­bust, real-time sys- tem is the need of the hour. Cir­cle rates or guide­line val­ues should be re­flected in the real es­tate val­ues. The gov­ern­ment needs to ar­rive at a ro­bust sys­tem. It could en­gage with the Na­tional Hous­ing Bank to cap­ture mar­ket data to work out an en­abling reg­u­la­tory frame­work,” says Anckur Srivasttava of GenReal Ad­vis­ers.

A re­port ti­tled Cur­rency De­mon­eti­sa­tion: Short Term Pain, Long Ter m Gain by As­socham, says that de­mon­eti­sa­tion will wipe out the stock of ill-got­ten wealth held in cash, while do­ing lit­tle about the wealth that has been con­verted to as­sets such as land and gold.

Fur­ther, it does not pre­vent the fu­ture build-up of black money. De­mon­eti­sa­tion might be ef­fec­tive, no doubt, but it is a blunt in­stru­ment. By in­val­i­dat­ing ex­ist­ing high de­nom­i­na­tion notes, it ad­dresses the stock of black money but does lit­tle to ad­dress fu­ture flows of black money (which may ac­crue in the new cur­rency notes). Elim­i­nat­ing such flows will re­quire fur­ther re­forms.

“Low­er­ing stamp taxes on prop­erty trans­ac­tions would in­cen­tivise the lower lev­els of eva­sion associated with such trans­ac­tions. Fur­ther, elec­tronic reg­is­tra­tion of real es­tate trans­ac­tions (and rereg­is­tra­tion of ex­ist­ing own­er­ship claims) to match in­di­vid­ual iden­ti­fi­ca­tion num­bers will go a good dis­tance in min­imis­ing the chan­nelling of cor­rupt earn­ings into real es­tate,” says the re­port.

The gov­ern­ment needs to ar­rive at a ro­bust sys­tem. It could en­gage with the Na­tional Hous­ing Bank to cap­ture mar­ket data to work out an en­abling reg­u­la­tory frame­work ANCKUR SRIVASTTAVA, GenReal Ad­vis­ers

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