Curb corruption in real estate

Contrary to popular belief, even after fifty-six months since demonetisation, real estate continues to thrive on black money. The only exception appears to be the relatively expensive primary real estate market led by Tier-1 builders.

Reports indicate that 30-50% of the sale value in secondary (Tier2/Tier3 developers) or resale properties happen in cash. A reason often cited is savings on stamp duty by quoting transaction value to be close to the guidance value instead of the market value. What prevents the government from keeping the guidance value at the market price?

Cash and corruption

Of late, apartments constructed by Tier 2/3 builders in residential sites are becoming common in Bengaluru and provide an easy opportunity for cash transactions. While almost all construction suppliers accept digital transactions from builders, it is a mystery as to why the builders still insist on cash from the apartment buyers.

There are gross violations of building byelaws with apartments constructed on residential sites. While BBMP’s building byelaws clearly states that a maximum 3 floors excluding parking can be constructed, the builders openly flout rules and construct 5 or 6 floors.

Although BBMP allows a maximum of three kitchens in a residential site . most apartments will have 10 or 12. Over the past 10-15 years a very “corporate“ term called “joint venture” or JV has gained popularity. A case where the site owner and the builder share the constructed apartments. Both the parties try to maximise their gains and is the main reason for spurt in high rise buildings within residential localities.

What about the quality of construction of these apartments? Who is accountable if such buildings collapse?

The authorities appear to turn a blind eye towards the overall issue. In general, all it takes is just one apartment with 10 houses to set the precedence for others to follow suit. Sample this: A regular residential house would have about 5-10 people, while a high rise apartment in the same site would house 40-50 people. Are our roads and civic infrastructure designed to take on such a load?

The nice neighbours in residential areas with our typical “namage yaake beku” (why bother) attitude helps the builder-authorities nexus. Neighbours often do not complain, fearing repercussion as our system does not offer any protection to them. Also, why should anyone complain? The violations are so obvious to the authorities. It would boil down to the government and civic authorities’ willingness to act. The nexus between the legislators and civic authorities are too obvious to ignore. How do we get over the ‘wolf guarding the sheep’ phenomena?

Can the state government audit and publish details about illegally constructed apartments in residential localities? How do Banks provide loans for illegal constructions? Can utility providers like BESCOM and BWSSB refuse connections to these complexes?

The whole purpose of residential locality is to allow people to stay in independent houses. Unlike other cities where apartment and flats are popular, Bengaluru is still known for its residential localities. It is rather sad to see this identity go away.

Clearly GST, RERA and other measures have failed to curb black money and corruption in the real estate sector. It is time the government, civic authorities, and urban planners bring about structural changes that will lead to transparency.

If rules need to be relaxed, so be it, but the system must discourage and penalise wrong doers, at the same time support effective grievance redressal mechanism. Government should empower local residents/neighbourhood associations to stop construction of any building that exceed FAR (Floor Area Ratio) threshold.

For transactions in the secondary market, can the stamp duty be reduced significantly if the transaction is at market value? This could encourage buyers to go for 100% legal transaction.

Until we see some strong system-led actions, the tax paying middle-class will continue to be in a dilemma if they need to compromise on their aspirations or on their principles. In this digital age, isn’t it intriguing that the government remains silent despite the rampant corruption in real estate? It is time the vicious link between black money/corruption and the real estate sector is broken. Can Karnataka’s new chief minister address this on priority and show the way to the rest of the country?

(The writer is an ICT Professional and columnist based in Bengaluru)