The real estate industry will be pressurised to be more transparent, with a Supreme Court-constituted special investigation team (SIT) recommending a ban on cash transactions above Rs 3 lakh. SIT has also suggested capping the cash holdings of companies and individuals at Rs15 lakh. A large chunk of black money in India is invested in real estate and bullion.
The biggest Indian property market in terms of volume, NCR is already in the midst of a slowdown and may be hit by the measures. Property prices in the Delhi-NCR market have fallen as cash-strapped developers grapple with high inventories and a trust deficit among customers, according to a Knight Frank report. However, the move may help tackle money-laundering in real estate. Liases Foras Real Estate Rating and Research reported that in 2012, black money accounted for about 30 per cent of the total transactions in real estate.
To tackle this, in the Union Budget 2016, the Finance Minister proposed that quoting of the permanent account number (PAN) be made mandatory for any purchase or sale exceeding Rs 1 lakh, and rules such as transactions in immovable property worth Rs 20,000 or more cannot be done through cash, further assuring that measures aimed at disincentivising cash dealings in real estate and other transactions will be put in place.
As a broker put it, paying stamp duty through cheque delays the registration of a property; with cash payment, registration is instantaneous. Adding to this, Sachin Sehlot, owner of Sehlot Realtors and Developers, a brokerage firm in Ghaziabad, reportedly said that during the registry of a house, many pay stamp duty through cash, however, that will get delayed now. He added that the government should at least allow a limit of Rs 5 lakh, so that hand-to-hand transaction in registries can be done. There is already a limit of Rs 25,000 for cash transactions in real estate in Uttar Pradesh, and thus, the rule, if implemented, may not have much effect on the hidden transactions already happening in the sector as a whole.