Tag Archives: Cash

ICICI Prudential Fund invests Rs 150 crore in Signature Global

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News Point: Signature Global has raised Rs. 150 crores from ICICI Prudential Real Estate Fund for affordable housing.

Rupee, Rupees, Indian currency, Indian money, Cash, Indian real estate news, Indian realty news, India property market, Finance, Track2Realty, Track2Media ResearchSignature Global is currently developing 5 affordable housing projects in Haryana. It is also exploring opportunities for affordable housing projects in Maharashtra, Gujarat and Uttar Pradesh.

The Company has witnessed a strong response to its projects, with each of them getting oversubscribed by almost 3 – 4 times at the time of launch.

“Our Endeavour is to provide good quality homes within committed timelines to all our customers. We currently have a pipeline of more than 7,500 homes in Gurgaon.’’ Signature Global Chairman and Co-Founder, Pradeep Aggarwal said.

He added, “As we are focusing on affordable housing, we will use these funds to add more projects. We are pleased to have Prudential ICICI fund as our financial partner and hope for a long and growing relationship.”

KPMG India Private Limited acted as financial advisor to Signature Global for the transaction.

Signature Global (India) Private Limited was formulated, as one of the key stakeholders of the SMC Group. SMC Group is the financial investment group with a pan-India presence. The primary business of Signature Global (India) Private Limited has been to offer financial solutions par excellence.

An imminent price correction on cards

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Track2Realty Exclusive

Rupee, Rupees, Indian currency, Indian money, Cash, Indian real estate news, Indian realty news, India property market, Finance, Track2Realty, Track2Media ResearchThere had suddenly been a deafening silence when the RBI Governor Dr Raghuram Rajan recently asked the real estate developers to reduce the home prices. However, the economist in Rajan was not making a faux pass. He could rather see a supply side of bubble in the making. Therefore, he came harsh on the sector.

Rajan even raised apprehensions with teaser loans to homebuyers. Certain banks offer teaser loans to homebuyers that are offered at cheaper rate but gets costly after 2-3 years.

The RBI Governor instead suggested banks to front-load lending rate cuts to help monetary transmission. At the same time he was curt to the demands of the developers that lowering interest rates alone can revive the pent-up demand in the market.

“I think we need the market to clear. With growing unsold stock, we need to see the ways to do it. Some of it might be by making loans easier, but we also don’t want to create a situation where prices stay high at the level which means demand can’t pick up,” Rajan said at the SBI Conclave.

Rajan’s stern take on the skyrocketing property prices make one thing very obvious. He is in no mood to bail out the cash starved developers anymore. What it essentially means that with lesser and lesser homebuyers coming into the market the funding options of the over-leveraged real estate companies are drying up. Price correction is a logical answer to come out of this self-inflicted mess of developers.

After all, the logic behind the housing turmoil does not need any economist to decode. Simply put, the end-users are not buying because they cannot afford. The lifeline of the developers – the investors – are not buying because they are no more getting higher ROI than other more liquid investment instruments. Thus, in order to make the demand-supply cycle moving the only way forward is a price correction.

“If the demand in the market does not get revived in the next 2-3 quarters many property development companies will go bankrupt. And revival does not look likely. Post Diwali there would be real crisis visible. So, many of the developers are left with no option but to off-load the inventory with price cut. They are struggling and have tried their best to hold on till now,” says a Mumbai-based property consultant, requesting anonymity.

Developers assert that with rising input cost their choices are limited. However, the market dynamics indicate that the cost of the construction is lowest in the last five years. The cost of construction for a bare shell apartment unit has been hovering between Rs. 1500-1350 per sq feet in the last over three to five years.

Moreover, most of the housing projects near completion or being completed are either joint development projects with the landowners or the part of large land parcels accumulated years back. So, even the FSI cost – that is often cited as the major input cost – of these projects is not at the present market value of the land in the given location.

However, the reason why the property price correction is imminent has less to do with the input cost. It has more to do with the survival mechanism of the developer. They have to serve the interest on debt to avoid getting bankrupt.

Many of them are today borrowing from private sources at a rate between 36-48% to serve the interest on the fund that was borrowed between 13-22%. This way they are only delaying the inevitable. This is not a sustainable business model. The developers have for long survived with a wishful thought of market revival and the tide getting over.

Now that the wishes of the developers are not coming true and the RBI and the Finance Minister talking tough, it is only a question of when and not whether.

No wonder, within 24 hours of Rajan’s tough talk, real estate stocks had then dragged down. The BSE Realty Index fell as much as 4% with DLF losing 6.6% and IndiaBulls Real Estate losing 10% in intra-day trade. The BSE Bankex also fell 2% with SBI shedding 2.5%, Bank of Baroda 5.2% and PNB 4.5%. This clearly shows the way forward as far as sentiments in the housing market are concerned.

Will FDI relaxation dry affordable housing supply?

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Track2Realty Exclusive

Rupee, Rupees, Indian currency, Indian money, Cash, Indian real estate news, Indian realty news, India property market, Finance, Track2Realty, Track2Media ResearchThe FDI relaxation by the Government of India is being hailed as a game changer across the Indian real estate sector. The developers even point out that now since the government has relaxed foreign direct investment norms in the construction sector by removing two major conditions related to minimum built up area and capital requirement, it simply means that any project under construction, regardless of size, can have access to FDI. So, it is going to help the cause of affordable housing.

However, the experience suggests that the FDI flow in the past has actually been a catalyst to the skyrocketing of property prices. It has rather defeated the cause of affordable housing in India as easy funding has led to more and offer high-end housing supply in the key Indian cities.

Facts speak for themselves. When the FDI was first allowed into the sector in 2005, the year saw an era of quick appreciation between 2005-08 till the global economic meltdown tamed this unsustainable growth curve. Nearly all the developers who got the big ticket foreign funding had then gone for luxury and super luxury segment of housing.

It is hence questionable today, even though the developers may deny or dismiss the query, as to how the real estate sector that is today hailing the government’s decision to relax FDI norms for construction sector would offer affordable housing this time around.

The government has relaxed foreign direct investment (FDI) norms in construction sector by removing two major conditions related to minimum built up area as well as capital requirement. This means that any project regardless of size which is under construction can have access to FDI. It also eased the rules for foreign investors to exit and repatriate their investments.

Defending the sector, Vineet Relia, Managing Director, SARE Homes says the foreign investment boost would open up gates of investment in the cash-starved sector and accelerate development of stagnant projects. Provision for foreign investors to invest in phase-wise development of projects and the ability to exit and repatriate investments is a strategic change for the sector where most projects get stuck owing to government approvals and funding. This would also bring down the investment window for projects.

“The removal of minimum capital investment of $5 million and floor area restriction of 20,000 sq. mtrs will help in enhancing the return profile for the investors. This development has also provided clarity of FDI in Greenfield projects where a foreign investor can now partner with an existing Indian entity and exit the project after a minimum of 3 year lock-in period.  The sector is finally witnessing the expected change and we can expect substantial improvement in delayed projects,” says Relia.

Nikhil Hawelia, Managing Director of Hawelia Group rather questions the way property appreciation and affordability is being calculated in the collective consciousness. According to him, the era post 2005 that saw the first infusion of foreign funds into the realty sector led to a demand driven growth where the end users were major beneficiaries of appreciation.

“Had it been an investor driven growth I would have been skeptical with the foreign money coming into the sector. But the fact of the matter is that the period saw some real boom into the housing market which was all end user driven; they were the ones to make profit. So, to say that FDI money would lead to affordability being compromised would be far fetched imagination,” says Hawelia.

Beyond the apprehensions of affordability going for a toss and the developers expected defence, the fact lies that FDI in LLPs is now permitted under the Automatic Route for the sectors in which 100% FDI is allowed under the automatic route and there are no FDI performance linked conditions. So, the FDI money that is on the cards in the Indian real estate in the next few years would be ROI driven investment; something that can fuel the cycle of quick appreciation.

Since most of the major Indian cities are sitting over supplied inventory, the fresh infusion of foreign funds may bring to the housing market more investors than end users. Analysts therefore have a word of caution: funding alone cannot lead to a sustainable housing market and a comprehensive demand & supply equilibrium with median income of the given city in consideration can only help the cause of the sector. That, unfortunately, is neither the concern of those who are relaxing policies for the FDI nor those who are waiting for the foreign funds to liquidate their dried coffers.

Sentiments still riding high, though investors remain cautiously optimistic: Report

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Rupee, Rupees, Indian currency, Indian money, Cash, Indian real estate news, Indian realty news, India property market, Finance, Track2Realty, Track2Media ResearchTrack2Realty: Knight Frank India in association with the Federation of Indian Chambers of Commerce & Industry (FICCI) in its fourth set of findings of its flagship report - the Real Estate Sentiment Index for Q3 2014 (July – September) finds that sentiments are still riding high, though investors remain cautiously optimistic. The report captures the sentiments of the supply side stakeholders on the current real estate market conditions and gives a view into the near future.

Key Takeaways

·         The Union Budget 2014-15 has laid considerable emphasis on the real estate sector and this has infused a positive sentiment for the future

·         Although the current sentiment score merely breached the 50 mark in Q2 2014 (April – June), results for this quarter (July – September) has risen to 63 which is attributable to the stakeholders’ positive perception regarding the economy, residential sales and price appreciation compared to six months back

·         The future sentiment score of the developers has surged to 73 in Q3 2014, up by 4 points from the previous quarter

A comparison of the last four quarters – Q4 2013 (October to December); Q1 2014 (Jan to March); Q2 2014 (April – June); Q3 2014 (July – September)

The above findings of the FICCI – Knight Frank Sentiment index specifically highlight the sentiments of the supply side stakeholders which may not have a direct impact on actual transactions.

Following is a Knight Frank India view on the present market scenario with regard to the residential and office markets.

In case of residential sector, the festive season has not brought in the expected cheer to the real estate sector, with markets reporting “not so-encouraging” sales over the past two weeks. Unlike the boom years, stakeholders this year had resisted the temptation to launch new projects in the season, focusing instead on reducing the inventory that has piled up over the past few quarters.

Markets like NCR and Mumbai have not even seen regular investments coming their way and seem to be waiting for the new government to execute reforms which may help improve the situation. Keeping in view the current situation we expect at least 6-8 months before actual transactions begin picking up. Though stakeholders are hopeful that this will change before the said time period, but if the current signs in the market are anything to go by, it’s still a long way ahead.

The office market on other hand, performance has been in line with our expectations with uptake happening across all regions. Relocation and consolidation of office spaces has been the major drivers of this segment with majority of the contribution coming from the outsourcing industry. Unlike the residential segment, vacancy levels within premium office buildings across prime locations have been constantly reducing with chances of a further drop in the near future.

As per the first round of survey for the FICCI-Knight Frank sentiment index during October – December 2013 sentiments were slightly negative for the office market until June 2014, in reality this sector has performed better, both in terms of new office completion and leasing volumes during the same period.

It remains to be seen if the sentiments continue to show a positive outlook in the coming quarters as we begin to experience actual economic revival and the implementation of policies.

CommonFloor.com raises $30Million funding from existing investor Tiger Global

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Rupee, Rupees, Indian currency, Indian money, Cash, Indian real estate news, Indian realty news, India property market, Finance, Track2Realty, Track2Media ResearchTrack2Realty: CommonFloor.com has received USD 30 million in a new round of funding from their existing investor, Tiger Global. The current round of funding comes within months after it raised Rs 64 crores in last round from Tiger Global and Accel India.

With more than 2,00,000 users visiting the portal every day, CommonFloor.com claims to witness a 100% increase in traffic, 125% jump in live listings and added over 25,000 communities in the last two quarters. The website also gets more than 25% traffic on its site via mobile app, and in the coming months it is poised for tremendous growth. 

Commenting on the Funding, Sumit Jain, Co-founder and CEO of CommonFloor.com said, “We empower people to realize their property dreams. This investment will support the team’s vision to think out of the box, innovate and lead the online real-estate sector in its journey to further enhance user experience. We have more than doubled our revenues and traffic and the funding will further accelerate our growth plans. This round of funding will be used to invest further in our product and technology that will enhance customer experience. The company will continue to strategically scale-up its marketing and operations across the 18 cities where it’s currently present and expand to 22 new markets in India.”

CommonFloor.com claims to redefine the online real-estate business by offering complete, end-to-end services that go beyond property classifieds. Its exclusive features like augmented map-based mobile app signals users about available properties in the vicinity, drone service to take pictures of panoramic views from planned high rise apartments and systematic photographic verification of properties listed help users make a smart property decisions.

Today, over 50% of the traffic to the website comes from urban India, especially metros such as Mumbai, Delhi, Bangalore and Chennai and close to 10% from overseas.

“India’s online real-estate sector has been expanding rapidly as Internet access grows, especially through mobile. CommonFloor.com has carefully mapped the needs of the online-based real estate ecosystem and has forged a clear path toward future growth. We are pleased to continue to partner with them” said Lee Fixel, Partner at Tiger Global Management.

CommonFloor.com has more than one lakh projects listed on their portal. It claims to currently have over 4 Lakh active listings. The company has a team of 900 plus employees and has also expanded its geographic footprint with new offices in 11 cities – Jaipur, Chandigarh, Lucknow, Nagpur, Indore, Ahmedabad, Kochi, Coimbatore, Mysore, Kolkata, Mangalore. The company already had offices in Bangalore, Mumbai, Noida, Gurgaon, Chennai, Hyderabad and Pune.   

Rupee depreciation painful for project riders in PE-II

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By: Prameet Narula

Rupee, Rupees, Indian currency, Indian money, Cash, Indian real estate news, Indian realty news, India property market, Finance, Track2Realty, Track2Media ResearchTrack2Realty Exclusive: Analysts believe most capital in Indian real estate was invested at the exchange rate of around Rs 40-45 to a dollar with the expectation of 25 per cent returns. The currency depreciation has impacted the sector adversely as foreign investors would wait for the full cycle to play out and exchange rate to settle down before taking any fresh investment calls. Even if rupee comes down to below Rs. 60 an exit would mean a loss of around 30 per cent.

Financial market experts maintain howsoever rupee may gain in the year ahead it is difficult for Indian currency to return to 2006-07 levels. As funds are coming to an expiry and investors are likely to press for exit even at a loss as they are aware that most currencies globally are also following a similar trend. Since there is not even anticipation of dollar-rupee parity reverting to Rs. 40-45 level, PE funds may not be interested to hold it either for next few years.

Facts speak for themselves. Private equity investment in Indian real estate nosedived in the first half of 2013. For the first six months of the year, real estate private equity investments were recorded at $276 million (Rs 1,638 crore), 46 per cent lower than a year ago. Private equity funds invested $514 million (Rs 3,050 crore) in the first half of 2012, says a recent report of Cushman & Wakefield.

PE fund managers are obviously trying best to put up a brave face. Amit Bhagat, CEO and MD, ASK Property Investment Advisors asserts the 2013 fall is not a sustainable phenomenon and is a matter of concern, but it is not a long term event. “Private equity deals, given their structure and longer tenure, are not covered through any hedges and this leaves room for sharp impact of currency risk on exits. In the past five years, currency has depreciated by 3-4 per cent compounded annually depending on tenure of the fund. There will be cases where funds will put exits on hold and wait for rupee to appreciate for better returns,” he says.

However, not everyone is expecting a turnaround in the fortunes of Indian currency. Nor is there any expectation of a significant foreign capital to flow into the country due to the elections in 2014 added to the apprehension of an unstable government leading to policy paralysis. Moreover, there are no major signs of the macroeconomic environment stabilizing. Till a stable government takes charge of the office and macroeconomic indicators go in green, it would be extremely difficult to raise fresh offshore funds. Analysts rather worry that the disbursement of capital on the already announced deals might be put on hold till stability returns.

Can NRI investment, even if they buy property the way developers desired, compensate this loss? Well, beyond the fancy expectations of Indians settled abroad buying property at home lies a realism which, for now, is difficult for the sector to accept or admit.

Realty sector saw significant change during 2005-14: CBRE

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Rupee, Rupees, Indian currency, Indian money, Cash, Indian real estate news, Indian realty news, India property market, Finance, Track2Realty, Track2Media ResearchTrack2Realty: Indian real estate market witnessed a significant change in the last decade mainly backed by opening up of FDI in the sector and shift in preference to high-rises over traditional low-rise structures, according to a report.

The opening up of the sector to Foreign Direct Investment (FDI) in 2005 initiated the entry of new avenues for funding, and capital inflow witnessed a spike, property consultant CBRE said in its report titled ‘Inflection Point: Ten years of organised Real Estate in India (2005–2014)’. Restrictive legislations till 2004 provided limited scope of funds for the sector. However, opening up of the sector to FDI in 2005 opened up new avenues for investment, it said.

As per the report, the capital inflows into the sector witnessed a spike especially in 2007 and 2008 when Private Equity (PE) investment was close to USD 14 billion. “The economy opened up for investments around 2005, which was instrumental in spurring broad-based fundamental growth across various sectors — accelerating consumption and heightening investment inflows,” CBRE South Asia Chairman and Managing Director Anshuman Magazine said.

India’s housing landscape shifted from largely independent low-rise plotted developments to high-rise apartment complexes, mainly to meet the over increasing demand for homes, the report said. “Investment-grade office space formed the mainstay of the evolution of the organised real estate sector in the country, which witnessed a shift from traditional central business districts of leading cities across India to new peripheral/suburban business districts in the last decade,” it said.

From a little over 90 million sqft in 2005 to more than 400 million sq ft in 2014, country’s investment grade office stock has undergone a generational shift in its composition, structure and spread backed by the private sector as well as intervention by the government. The retail landscape also underwent significant changes over the last decade.

“The period was marked by the rising popularity of malls among shoppers and retailers, as against the decline of major high streets. Going forward, technology and e-commerce will co-exist alongside malls and high streets in a comprehensive retail real estate eco-system,” Magazine said.

Cartel of black money behind myth of appreciation-I

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By: Prameet Narula

Rupee, Rupees, Indian currency, Indian money, Cash, Indian real estate news, Indian realty news, India property market, Finance, Track2Realty, Track2Media ResearchTrack2Realty Exclusive: How realistic is the reported appreciation of property in a market where the buyers are unable to exit at even half the reported appreciation figure? Track2Realty Focus tries to decode the mystery of property appreciation to unveil the worst kept secret of the business.

It is a sellers’ market where developers inflate the property prices every now and then with the backing of brokers and underwriters who have cartel of black money to absorb the hike in property prices. It happens in many micro markets across the country, but laboratory of such price appreciation happens to be Delhi-NCR market.

Gaurav Sharma bought an apartment in Noida couple of years back at a price of Rs. 3000 per square feet. The developer had then verbally assured that any appreciation less than 30 per cent and the developer will buy back the apartment. Two years down the line Gaurav is in a fix as it is the endless wait for the project to be even halfway of completion. And it is not just the delay in possession that is pinching the gullible home buyers like Gaurav Sharma.

The property under construction has appreciated more than 60 per cent as per the claims by the developer, but the existing buyers are stuck mid way as beyond the developers’ claims of appreciation they are neither getting the possession anytime in near future nor are they getting the chance to exit with even a decent 15 per cent appreciation.

The developer, in the meantime, is selling the inventory in the same apartment at Rs. 49oo per square feet. Why are then the buyers finding it hard to exit at even Rs. 3500 p sq ft? They have even contacted the developer to dispose of the booking at Rs. 3500 per sq ft that is Rs. 1400 per sq ft less than what the developer is actually selling. However, the developer has refused to oblige the existing buyers to buy back.

In this grievance of Gaurav Sharma and many such harassed buyers lies the stark reality of property appreciation in many parts of the country in general and North India in particular. There is an apparent cartel of black money lying with the chain of brokers and underwriters who are absorbing the so-called price appreciation that looks all too glorifying in the account books of the developers and such reported figure in media shapes the outlook of a booming property market.

When many of the developers, some even with pathetic track record of delivery, announce the entire new launched projects being sold on the day of launch itself, it defies the conventional wisdom of economics in a market where beyond the demand-supply gap stands the gigantic issue of affordability. The reason behind the selling of these new real estate projects in a day or two is not the actual buyers booking flats but an artificial demand being created by the developer with the nexus of brokers and financiers who underwrite such projects. Needless to add, actual buyers like Gaurav are put in a fix.

Real estate project underwriting in its broader term means the developers’ nexus with the operators of black money in the market where the brokers/financiers underwrite the given project, in many cases with the condition that henceforth they will control the marketing strategy and the price point.

Of course, with the deep pockets (read black money) that they have it is easier for them to make money by the huge price gap between launch price and the artificially inflated price. Average buyers living under the illusion of property prices appreciating and the brokers/underwriters discounted price being offered (which is much higher than the launch price) are easy trap and the underwriters make money through this channel.

This gap in price point between launch price & developers’ revised price is what is being projected as the appreciation of the property wherein the gullible buyers fear with ‘now or never’ psyche whereas the actual end users who have booked at the time of launch hardly find a market to exit at that level.

…to be continued

Cash is king in real estate

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By: Prameet Narula

Rupee, Rupees, Indian currency, Indian money, Cash, Indian real estate news, Indian realty news, India property market, Finance, Track2Realty, Track2Media ResearchTrack2Realty Exclusive: Elections, real estate and black money have a symbiotic relation. Track2Realty tries to understand this unique and complex relation of the sector and the politicians where cash is king, yet they deny and dismiss it. The colour of currency may be projected as white in public posturing, the cycle of cash transaction with black money starts from entry level itself. Lack of transparency is what keeps the cycle moving.     

An advertisement by a real estate company proudly proclaims that ‘only cheque payments accepted’. Prima facie what it says is that no cash payment and no black money in buying the project. It, however, raises more questions in the minds of the buyers than answering the doubts about the acceptance of cash component by the developer.

Parking of black money, often the political investments, is very much a reality of Indian real estate; though on face value everyone denies it. Despite of sitting over record inventory, liquidity crunch at company level and general macro-economic problems affecting the buyers’ affordability, if the real estate is still constantly appreciating in its capital values it is just due to the fact that ‘cash is king’ in the business.

As per a rough assessment of cash transactions in the real estate there are no less than 40 per cent of the money in the business as black. Many of the developers privately admit that they can’t do away with it as it starts from the entry point itself. The absence of financial modelling of the business and the lack of transparency and well-defined regulatory practices are fuelling this cartel.

Since the banks do not finance the basic raw material, that is land, the developers have no choice but to look for money from sources which is often illegitimate. In this high risk transaction the major component is often unaccounted in the books. From there starts a vicious cycle of cash recycle as many of the initial investors in the project also play with black money only. They invest in the project for speculative reasons with cash in hands and are more often not backed by any bank finance.

Political money deep in system

Recently, when several Cabinet Ministers, Chief Ministers and Members of Parliament showed up at a wedding reception hosted by a developer, it fuelled media speculation of the developers’ proximity with them and supposedly their investment in his company.

However, the insiders do not see anything unusual in it. Requesting anonymity a broker who claims to specialise in making high-profile real estate deals in the Delhi-NCR market says it is the best investment vehicle for politicians to park funds, as it is a safe avenue and fetches the highest return with the guarantee of a physical asset in case deal goes sour at any point of time.

It is a symbiotic relation and if politicians need developers to park funds and convert black to white, realtors are too keen on linkages with politicians, both for funds and power. Such connections often help speed projects and in some cases, get what is illegal converted into legal for clearances. “It is not just in Delhi-NCR or the major metro cities,” says a realty consultant on condition of anonymity, “rather it runs much deeper into tier-II and III cities as well. Of course, since the demand and appreciation potential is more geography-specific, hence more black money into these metro city markets.”

Many of the developers privately admit that it is very tough to do business without political backing in a system where even beyond the finance all the approvals and land holding is with the politicians. While such hand-in-glove relationship is a global phenomenon, the nexus is strikingly higher in the developing countries where regulatory mechanisms are not foolproof, laws are outdated and the government approval process is not only slow but subject to be withdrawn and penalise in most of the cases.

Denial when fingers are pointed

When a report by the US State Department said money generated through illegal means is laundered through various means, including real estate and election campaigns, in India, both the policy makers and the real estate sector dismissed it as frivolous. “High-level corruption both generates and conceals criminal proceeds. Illicit funds are often laundered through real estate, educational programs, charities, and election campaigns. Companies use trade-based money laundering to evade capital controls,” the International Narcotics Control Strategy Report 2012 had said.

But even the former Finance Minister Pranab Mukherjee (now President of India) said a couple of years back that real estate is the biggest haven of black money and there exists a cartel to channelize that evaded currency. The real estate industry, on expected lines, had reacted sharply then. Many of the leading developers and the industry body cried with a holier-than-thou spirit. Many of them, in the hue and cry, probably even did not read the underlying fact that there exists a secondary market in the realty business where the transactions are taking place at a much higher and artificially appreciated price than the circle rate that the government has set as the lowest benchmark. 

Mukherjee as the Finance Minister had even presented a White Paper in the Parliament which suggested many initiatives to curb black money. The White Paper had even pitched for reforms in the cash vulnerable sector like real estate. Nothing seems to have moved in that direction and business goes on without bothering much about the colour, source or legitimacy of the currency.

Not all are still ready to admit the existence of black money in the sector. DLF which has now outsourced its accounts to an external agency Genpact is the first to come out with a moral high ground on the subject. After all, accounts department is where all the black and white gets intermixed. The question is how many of the developers in the country are even open to such an idea. Moreover, most of the real estate companies are not listed ones and account books do not get even the entry of unaccounted money collected in cash. As a matter of fact, it made headlines for weeks when the Income Tax raid found over Rs. 100 crore in the basement of a Delhi-NCR based developers’ mall. 

Sanjey Roy, spokesperson of DLF dismisses the scope of black money into big ticket property transactions. “We accept and make all the payment through cheque only and hence there is absolutely no room for any black money in our property transactions. We as market leaders are known to establish fair trade practices and any legislation that the government brings, be it TDS or any other tax structure, we will follow it as the law of the land prescribes,” says Roy.

Cash transaction more in secondary market

Industry body NAREDCO blames the secondary market for cartelisation of black money and recommends measures to put a check over there. A NAREDCO spokesperson says a proper check on the secondary market is one of the steps towards maturity where transactions will be more transparent.

“Secondary market has lots of black money component whereas primary market has dealings on the advertised price point and the banks are funding the projects. In secondary market developers don’t have control where lots of black money is exchanged and malpractices are there. I don’t see any reason why the sector should not be happy with a comprehensive reform. This is a step towards the maturity of the market the way we saw it in automobile and telecom where the supply was not restricted. In real estate demand is there but supply is restricted, but with black money curtailed you will see lot more demand coming in the market and supply will follow the demand. If there is more confidence in the transaction, it automatically revives the market as well, says the spokesperson.

Such a take is not far from reality as black money is so rampant in the overall eco system that it suits a section of buyers in the secondary market. However, the very same demand for cash component, at times up to 60 per cent of the deal, is what pinches the genuine salaried middle class end-users.

Pallavi Trivedi, a journalist working with a Noida-based television channel wants to buy a house in the IP Extension of Delhi, close to Noida. The dealer tells her that a 2BHK flat will cost Rs. 1.40 crore though market transactions are taking place at around Rs. 60-80 lakh. Her dilemma is that she has been told to arrange Rs. 60 lakh as cash to buy the house.

“Even if I would be having this much of black money, for the rest Rs. 80 lakh finance with the bank would mean close to Rs. 1 lakh as EMI. My salary must be more than Rs. 2 lakh to qualify. If I have that kind of a salary and this much of cash component why will I buy an apartment in a relatively down market location? The apartments in this location are some 25 years old and needs constant maintenance. This secondary market sucks as much as the primary market,” she cribs.  

Black money in election year

The debate also throws a big question that the sector is more concerned with. It is not about the regulations in the pipeline that the developers worry will curb the black money coming their way. A 2012 study focusing on election funding and cement consumption in at least 17 states of the country has highlighted the role of black money in elections. The study, done by two Indian-origin US political scientists, has established how cement sales are linked to elections due to a deep nexus between politicians and real estate developers.

The two authors, Devesh Kapur of University of Pennsylvania and Milan Vaishnav of Columbia University, in their report sound an alarm bell for the electoral system, backed by scientific investigation. Raising money from ‘supporters’ has the potential effect of post-election paybacks in terms of distorting public policies. It says the builder-politician nexus has implications for decisions on land acquisition and conversion; land and housing prices and land inequality; and the overall public management of urbanization.

Some financial analysts suggest just by placing a regulator with a stick in hand is not the ideal solution to put a check on many illegitimate practices in the sector, including the channel of black money. They suggest electoral reforms and bringing a voluntary disclosure scheme could be explored without any impunity for anti-national/money laundering activities be allowed. Real estate needs comprehensive and holistic reforms which would help in reducing generation of black money in long term as freeing of gold imports had helped in checking smuggling. That, unfortunately, does not seem to be happening in the election year. And hence, cash will be king in the election year, irrespective of its movement ‘In’ or ‘Out’ of the real estate.