Builders continue to ask for a hefty cash pay-out in property and land purchases forcing customers to either drop plans or raise cash from other sources. And all this is happening when large property markets with established realty developers are moving towards cheque payment in a big way. Smaller cities like Ahmedabad, Chandigarh, Jaipur, Noida, Aurangabad, Kochi and Indore are still witnessing large-scale usage of cash in property sales. “Large property markets, being under the direct glare of authorities, have seen the proportion of cash and instances of deals involving cash going down. However, relatively smaller markets have not seen a decline like this as yet,” said property broker operating in Jaipur.
A late October survey conducted by a community platform Local Circles, based on over 50,000 responses across 220 districts across India, pointed out that cash continues to dominate the real estate market despite the demonetization of high-value currency notes 3 years ago. Approximately 42% of the respondents were from tier 1 cities, 28% from tier 2 cities and 30% were from tier 3 and beyond cities or rural locations. When asked about the mode of payment for any realty transaction undertaken by respondents over the last one year, 57% said they paid 25-50% in cash and rest via e-payment or cheque. Around 33% said they paid the full amount by e-payment or cheque, while 10% said they paid less than a quarter portion of the consideration in cash and rest via e-payment or cheque.
Limiting it around 10-12% is an improvement as against pre-demonetisation level of up to 30-35% cash component that was demanded by builders irrespective of which markets they were operating in. A developer in Vadodara said that cash usge is more prevalent in deals related to vacant land parcels. Most of the landlords are either farmers or related to unorganised sectors and therefore are fine with receiving certain part of consideration in cash. In most of the land transactions, cash is usually insisted by either parties to avoid the tax incidence. “Lower taxes would lead to better compliance, higher revenue and less usage of cash.
Reduction in long term capital gains tax (LTCG) from current 20.8% to 10% would encourage more deals’ registration at actual value as against keeping a cash component,” said Jaxay Shah, national chairman of the Confederation of Real Estate Developers Association of India (CREDAI). Builders operating in these cities may not agree to accepting or asking for cash as part of total consideration but they do admit anonymously that they need to have a stream of cash component for specific reasons “If every vendor accepts cheque payments, why do we need cash? But seriously, can we really put permissions, approvals and liasoning work under this category?” asked a builder operating in Noida market.
According to an estate agent operating in Indore, higher stamp duty rates and the mismatch between circle rates and actual market rates has been prompting deals with higher cash component. “If the actual market rate is higher than circle rates, both buyer and seller find it convenient to add cash component to the deal. There are many such localities in Madhya Pradesh where this situation exits. Also, the recently hiked 12.5% stamp duty rate is also encouraging cash deals indirectly,” said the agent.
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