Illegal cash payment still exists in Mumbai’s real estate market

MUMBAI: In Mumbai's real estate market, cash transactions are still prevalent during transactions. The system of demanding an illegal cash payment still exists in many pockets of the city though many of the bigger developers now accept the full payment by cheque.

Historically, black money became a reality when unrealistically high income tax rates were slapped on people. Those trying to save some of what the taxman would take, invested in instruments like real estate. In the 1970s, builders used to take 80% in cash and 20% as a cheque from property buyers. A decade later, it was 60% cash and 40% as a cheque payment. That was after tax rates were lowered.

Today, the amount of black money that changes hands has reduced still further but many builders continue to demand a substantial part of transaction costs in cash. This could be anything between 15% and 40% of the value of the property. The good thing though is that most big developers and reputable real estate firms are willing to process a transaction with cheque payments.

Even so, cash payments are the norm when it comes to all large land transactions in the city. When a developer claims he has bought land for Rs 500 crore, there is a strong possibility that he has undervalued it by at least Rs 100 crore.

Many of the demands for part of the payment in cash come for flats worth Rs 50 lakh and above, say industry insiders. The Bandra, Khar and Juhu belts in the western suburbs are the most "notorious'', where as much as 50% of a flat's value may be taken in cash. Builders would rather give it a positive spin and call it `working money.

They claim cash is required at every step of the way—to get land cleared under the Urban Land Ceiling Act, to get the layout approved by the BMC or to procure various building permissions like the commencement certificate. "There is a rate for everything,'' says the builder.

Source: articles.timesofindia.indiatimes.com