Impose penalty on property investors holding vacant housing stock to curb speculation | real-estate | Hindustan Times
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Impose penalty on property investors holding vacant housing stock to curb speculation

Heavy holding taxes and other penalties on real estate investors will help rationalise property prices, says a new report

real estate Updated: Mar 02, 2017 15:36 IST
Heavy holding taxes and other penalties on property investors will help rationalise real estate prices.
Heavy holding taxes and other penalties on property investors will help rationalise real estate prices.(HT Photo)

Over 60% of housing stock produced in the last five years within the Central National Capital Region is reported to be unoccupied. To put off speculators, heavy holding taxes and other penalties should be imposed on owners of these properties, primarily investors, to bring down demand in the housing sector and subsequently property prices, suggests a report titled Real Estate Sector - Post Remonetisation and Real Estate Regulation by RICS (The Royal Institution of Chartered Surveyors, a a professional body that accredits professionals within the land, property and construction sectors worldwide.

The real estate sector is a significant repository of money that’s not accounted for in India, usually by way of property purchased in ‘benami’ (not under the owner’s name) form in cash. A key purpose of demonetisation was to eliminate use of black money changing hands during such transactions.

As per estimates about 30% of money changing hands within the real estate transactions are unaccounted for.

Experts say that there have been historical reasons for the sector to have seen high levels of cash transactions, the main reason being heavy taxes levied on both buyers and builders.

“A more insidious aspect of the real estate market is the prevalence of cash transactions in buying and selling of real estate, often unaccounted for at both the buyer and seller ends – and therefore escapes taxation liabilities or scrutiny. Although this practice is usually prevalent in the secondary markets, ie where real estate assets are re-sold, there have been instances of some unscrupulous developers also demanding a certain portion of the sale consideration in (unaccounted) cash,” says the report.

Ironically, while the purpose of using of unaccounted-for cash in a real estate transaction has been to avoid taxes and reduce the effective cost(s) of transaction, it has been instrumental in driving up pricing within the real estate sector.

This has been so because of a steady supply of real estate assets that may not find actual physical use in the near future, but provide suitable avenues for ‘parking’ of unaccounted monies. In essence, the value of such real estate assets is not determined by their potential for physical use, but for their potential to act as a vehicle to convert unaccounted money to hard assets. That is likely to change going forward.

Budget 2017 has also restricted the use of cash in any transaction equal to or above the amount of Rs 3 lakh. This means that developers/ sellers will not be able to ask for cash amounts to over and above Rs 3 lakh.