Taking a gentle view, one could say that many things are amiss with the Indian property market. The innumerable clearances, sanctions, permissions and approvals needed for a project sing the cacophonic tune of corruption. The market is stunted by developers who have no qualms about duping unwary buyers. The case in point is the recently reported fraud by Parthsaaradhy Properties of Kerala. And buyers who dream of a home face nightmares of delays, changed specifications, higher costs and leaking, cracking walls, assuming they do eventually get possession of the property.

And this is just the primary market of new homes. Shall we dare enter the resale market facilitated by brokers and where the colour of money is grey (part white and part black)?

Mis-guidance

Ignoring the topic of ‘brokers’, let us consider the issues after a buyer and seller have connected, as the experience of a flat-seller known to me. The seller wanted the proceeds paid as a cheque. After much difficulty, a buyer who was amenable to non-cash payment was identified, albeit at a much reduced price. The somewhat-happy seller went to the registrar’s office, only to receive a rude shock. The registrar refused to accept the price, as it was 60 per cent over the current ‘guidance’ value for similar properties in the locality. The only choice left was to register the apartment at the low guidance value and receive the rest in ‘cash’ (otherwise called black).

Why is guidance so low, the seller enquired. Data from the previous registrations showed that sales were around a certain price, which is now deemed as guidance. The registrar allowed small deviations in price, but large changes, he said, ‘would raise questions’.

Putting a floor and a ceiling

The desire to save on registration charge, along with the seller’s desire to pay low capital gains tax drive down recorded sale prices. So, even with a lot of honest intentions, one ends up becoming a party to shadow transactions. This is unfortunate to the government on multiple fronts – revenue loss, tax loss and money ‘disappearing’ into the shadow system and importantly, creation of a opaque property market.

May be the government could consider having a more dynamic guidance value, instead of the rigid system currently. A floor or lower limit can be set and it would be used much the same way as the guidance value now. An upper ceiling, that keeps moving, can be set to enable reporting true sale prices, if one chooses to. Revisions to this probably can be justified for the record.

This would help the government to earn higher revenue and genuine sellers who want to report actual prices and have a clean transaction. At the very least, a growing upper bound will tell us that there are more honest participants in the market. And if it does not change, we will know for sure the biggest malice that haunts the market – we, the people.