Wednesday, October 22, 2014

Black money, Real estate AND Us

I believe that black money (significant part if not most of it) is present within Indian boundary and is not languishing at foreign coasts. This article at sums it up nicely.
Many Indians have shown their willingness to curb corruption over past 2-3 years. In the same spirit, I recommend minimizing real estate transactions, in our own life, till a cleanup happens in real-estate sector. This will involve minimal individual pain. If many of us do this, we can effectively curb a big chunk of black-economy.
How to minimize real-estate-transactions in one's life?
Buy only one house in which you want to live. Do not buy house for investment purpose. There are sound financial rationale against real-estate-investments anyway. Rooting out corruption/black-money is an added kicker against real-estate-as-investment philosophy.
If you are facing black-money (read compulsary cash transaction) menace while buying first house itself, do the following:

  1. If you are buying a house from builder, there is minimal to zero black money involved in the transaction. If the builder insists on cash, find another builder.
  2. If you are buying second/third hand from an individual, refuse to pay cash. Move to another seller or a builder.
  3. If neither method works, stay put in rented accommodation. If you are really consumed by the fire to root out corruption, is it too much of a pain to stay rented? Is it too much of a sacrifice?

What if you are a seller and buyer insists on cash?
If you have bought only one house for your own consumption there is no question of selling it. Unless, you are forced to move out of the city permanently. If your move-out is temporary, say for job compulsions, then you must have an intention to return to your city in future. In that case, rent out your own house and remain a tenant in the new city.
If the house you want to sell is your second/third/fourth(read investment) house, then buyer indeed holds power on you. That is why I recommend not to use real-estate as investment.

I believe if many of us minimize personal-real-estate-investment, the industry and government departments will correct its ways. The proverbial-black money will then be forced to find out other avenues. Is it not a worthwhile crusade?


Anonymous said...

The rent paid by tenants can also be black money to the landlords.:)

Sambaran said...


True. However, here again if the tenant is claiming HRA allowance with proper PAN number, the landlord need to be wary.
The whole point is increasing the bar on generating/consuming black money.

Anonymous said...

What about the unfortunate employee forced to pay rent to a landlord who refuses to provide a PAN and as a result gets even his HRA disallowed ? Our real estate sector is quite the black money haven ! I completely agree with the idea of buying a house you intend to live in not as an investment.

Sambaran said...

@Anonymous, I completely share your concern that real estate is black-money-haven. I hope that we can all hit it down a little bit with our efforts and our cumulative effort may have some significant impact.