HomeReal EstateReal Estate synonyms of Black Money

Real Estate synonyms of Black Money

Black money refers to money removed from the official economy (via corruption, bribery, tax evasion, etc.) and stored in terms of cash within or outside of the country. Any monetary transaction which is done in cash and not shown officially on any documents is the source of the generation of black money.

Real estate is a market in which sources confirm that 50 % of business are done in cash. Most real estate developers do so to save tax which is actually wrong. If you try to approach any builder they will say openly that terms of payment will be 40 % in while 60 % in black like that. Unfortunately No transparency exists in the real estate market. Some of the developers still prefer to have 100% white money transactions but those are only a few.

Black money in the real estate sector is commonly seen due to actions like undervaluing properties, cash deals, benami transactions, and the utilization of shell companies to hide the actual origin of funds. These behaviors not only corrupt the credibility of the housing market but also drive up property costs.

The influx of black money causes property prices to be distorted, making it harder for legitimate buyers to purchase homes. This inflated market, which is created artificially, makes it difficult for first-time homebuyers to enter and worsens income inequality.

There are multiple reasons for asking for black money during property deals:-

  1. As per the process, the builder/developer has to get approvals from different agencies in the government/municipality in each state malpractice/ bribery is involved, which causes the builder to pay money in cash to get approval for the project. The builder is passing on this burden to the customer.
  2. In order to save Tax and hide white transactions seller is asking for black money.
  3. Builder/Developer has to make payments to other suppliers like cement, and steel building material suppliers in cash which forces the builder to ask for black money.

real estate black money

Synonyms of Black Money in Real Estate

Cash Transactions

Cash transactions are frequently used as a common method for black money to infiltrate the real estate market. The utilization of unrecorded cash allows purchasers and vendors to avoid paying taxes and submit lower values for property transactions, resulting in decreased government revenue.

Under-Reporting of Property Value

Understating the value of property is another strategy used to enable transactions involving black money. Individuals can hide the actual value of their assets and avoid paying taxes on profits by underestimating the value of properties in registrations or sale deeds.

Benami Transactions

Benami transactions occur when the property is bought in another person’s name in order to hide the real beneficiary. This secret activity enables people to put unreported funds into real estate without alerting tax authorities.

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Government Initiatives to Combat Black Money in Real Estate

Real Estate Regulation and Development Act (RERA)

The main goal of the Real Estate Regulation and Development Act (RERA) is to ensure transparency and accountability in the real estate industry through project registration requirements and transaction regulations. RERA aims to reduce wrongdoing and safeguard the rights of homebuyers with strict regulations.

Demonetization

Demonetization in 2016 was a strong action taken by the Indian government to reduce black money and encourage the use of digital transactions. Even though the real estate sector was greatly affected in the short term, there is still ongoing discussion about the lasting consequences.

Anti-Money Laundering Laws

The importance of anti-money laundering laws in fighting the circulation of illicit funds in the real estate sector cannot be overstated. These measures aim to prevent illegal activities by implementing stringent KYC norms and reporting requirements.

Recent Government Initiatives

The Indian government has implemented different strategies to address the issue of black money in the real estate sector, such as implementing the Goods and Services Tax (GST) and taking strict actions against benami properties. These actions demonstrate a dedication to improving transparency and integrity within the industry.

We will try to discuss briefly the effects of black money in the real estate market.

Effect on Society

If you closely observe in many rural areas prices of land have gone extremely high because of this black money, hence many farmers prefer to sell their agricultural land and live life like rich people, rather than farming. Consider that if the majority of farmers does this it could create an alarming situation, if we don’t do anything then food security will be under threat.

Effect on Middle-class people

Now consider the case if a middle-class person who wants to purchase a home. He selects a home worth 30 Lakhs while asking for payment terms. The builder usually asks for payment for 50 % in black by cash and 50% in white by cheque. So the total amount required for purchasing this house is 15 Lakh in black, 15 Lakh cash, and an additional amount required for the registry.

If a person is a salaried person who has only white income, he/she usually plans to purchase a home by taking a “Home Loan”. Bank usually provides 85% loan sanction of total property value, hence for the above case one will get the loan amount on the white value declared for the property i.e. for 15 lakh declared value one will get loan sanction for 12.5 lakh. So one has to arrange for 15 lakh black amount (cash), 2.5 lakh white amount for down payment & 1.5-2 lakh for registry apart from home loan amount for purchasing a home worth 30 lakh, which is somewhat unsustainable for middle-class people.

Only the following options are left with them:-

  1. Make arrangement of this amount.
  2. Increase loan amount by making documents of extra work.
  3. Covert white amount (if they have) to black by withdrawing in cash
  4. Forget that house and search for another.

Conclusion

Real estate has become most popular parking place for all illegal wealth (Black money), which has a terrific effect on middle-class people who want to purchase a home. Addressing this issue requires a multi-pronged approach involving stricter enforcement of laws, greater transparency, and concerted efforts to promote ethical practices in the real estate sector.

Shitanshu Kapadia
Shitanshu Kapadia
Hi, I am Shitanshu founder of moneyexcel.com. I am engaged in blogging & Digital Marketing for 10 years. The purpose of this blog is to share my experience, knowledge and help people in managing money. Please note that the views expressed on this Blog are clarifications meant for reference and guidance of the readers to explore further on the topics. These should not be construed as investment , tax, financial advice or legal opinion. Please consult a qualified financial planner and do your own due diligence before making any investment decision.