As a citizen of India, I am looking forward to all your actions with hope and optimism. I am ready to wait for a full financial cycle of income tax department scrutiny before judging demonetisation, but I have a worry to share.
While cash money did hold a lot of ill-gotten wealth of our nation, there exists a bigger, far bigger cache where the real bulk of corruption-money is stored, and till that is not exposed, there will be no real impact on black money hoarders.
Real estate is The Asset Class that is mother of all corruption in India and tackle it you must, if you want citizens to get a real result of your proactive actions against black money.
I am proposing an idea-structure for you to consider as a way forward to deal with the final frontier of corruption.
Land and property can be looked at as a prime asset-class that has been the most preferred destination of parking black money by the unscrupulous.
It is a tragedy that a large amount of wealth created by other business activities is getting parked and thus locked-up in an asset class that offers little for nation building. Due to a constant stream of such investments heading into this sector following major problems are occurring:
1. It provides people with an opportunity that can lead to massive scale of tax avoidance that prevents state from getting its due that it requires for developmental activities.
2. A large amount of business earnings are parked in this sector that could have been used by private sector for other financial activities to keep the economy vibrant with liquidity, making this one of the biggest hindrances to rapid economic growth.
3. The constant inflow of money in this sector pushes up property markets all the time, making the fundamental need of having a self-owned shelter a distant dream for most.
4. The constantly increasing property prices are the root-cause of inflation as property is required for conducting most economic activities. As real estate prices increase the capital cost and investments for doing any business, it directly impacts on to the price of commodity or services.
5. Constant inflow in this sector encourages speculation and helps in building up a vicious cycle of circular economy that has been snowballing real estate prices in urban India.
6. With land becoming an investment opportunity, agriculture sector that is completely land-linked has ended up losing its attractiveness and people are moving away from it leading to urban migration and social problems in rural communities.
7. As real estate is the biggest money spinner with maximum amount of investment coming into it, it is leading to lawless growth of urban habitat where greed of making a fast buck is leading builders to disregard developmental regulations. This is turning Indian cities into uninhabitable urban ghettos with straining infrastructure, uncontrollable traffic and massive amount of pollution.
8. As land and property hold tremendous value, it is a sector that is rife with ownership issues and disputes that is clogging Indian judiciary.
Looking at the above problems linked with black money driven real estate sector, cleaning it up is an objective that would serve many other purposes beyond mere black money issue, making it a nationally important issue requiring critical attention of the state.
It is important to note that this move has to be all-encompassing and must look at all transfers and transactions connected to all types of land (by not differentiating agriculture and non-agriculture land) and all property-types that are built for any purpose.
India needs to solve the problem of black money parking in land and property, along with setting-up mechanisms that will regulate the development of the sector and remove ownership related issues.
India must be free from black money-driven land and real estate sector by bringing all ownership transfers on-board with transparency regarding ownership, asset value and compliance to developmental regulations by 2024.
The multi-dimensional problem of black money eradication and regulation can be solved only by formation of a state controlled property exchange similar to other exchanges in operation for other asset-classes.
The structure of the organization may be similar to be that of SEBI (Securities and Exchange Board of India) structured under an all India act.
It may be identified as Land and Property Exchange Board of India (LPEBI) and formed as a central regulator having authority over all land-types and all build-property types transactions.
The preamble describing the basic functions of the LPEBI can be “…to protect the interests of owners and investors in land and property and to promote the development of, and to regulate the land and property market and for matters connected therewith or incidental thereto.”
At the onset, the organization must have state-level presence with a central regulator looking at the policy matters and forming and evolving rules and regulations required for the same.
The state level organization may function under the joint-ambit of revenue and urban departments of each state.
The organization must be made the owner of all property ownership records and must be directed to ensure that all the land and property ownership are recorded in digitized format, thereby forming a repository that shall serve as the backbone of the process.
The organization in each state must be given a time-bound mandate to bring on board (in digitized format) all the revenue records (including GPS based land-survey) and built-property of the state and a base valuation philosophy for all assets by re-evaluation of existing Jantri-based system.
Simultaneous to the process of creating authentic data bank of the entire asset-class of the state, the organization must initiate the process of formation of a transaction platform for the entire asset-class that is linked with the authenticated data bank.
The transaction platform may be known as Property Exchange of ABC (name of the state).
Through necessary enactment as state and Centre level, from a given cut-off date, all assets and asset related transactions in this asset-class must be shifted exclusively to this exchange.
All existing assets must be registered on the exchange before the cut off date with ownership authenticated through due process. Those assets with legal disputes must also be listed here with the dispute status cross-linked with related court’s database.
Across India, ownership of a large number of assets belonging to this sector are under judicial scrutiny, disallowing clear identification of owner. This issue may hamper the process of authentication so a special provision must be made on the property exchange to prevent transactions of such assets by linking it to judicial database.
Assets that do not appear on the exchange before the cut-off date shall be declared state-owned.
The property exchange must be fully IT driven (similar to all other trading exchanges), transparent and cross-linked with ownership database and financial identity of those who wish to buy and sell any asset in the given category in the state.
As legal disputes connected to this sector are a bane for judiciary, special enactment must be made to ensure that there is a preventive mechanism in place that disallows admission of further disputes in courts after an asset is listed on the exchange.
Any transaction that is made outside the property exchange must be considered illegal and inadmissible for deserving ownership across the state. No state level court should have the competence to review validity of transactions made outside the property exchange.
LPEBI must encourage each state to develop a coherent and market-validated valuation base for all assets to assist the sector in its initial stage. The sector may be opened to price discovery through market forces of demand and supply after due consideration and careful evaluation.
LPEBI must function as a guardian of the sector by providing a dependable ownership to the citizens for the properties acquired by them using the platform. Instead of expecting users to do the due diligence regarding property titles, state must take responsibility for the same.
The ownership acquired using this platform may be further secured by a guarantee of payment by the property exchange in case any asset failing to be available to the purchaser with full title. This mechanism may be linked with charging of an insuring cess to the purchaser by the exchange. The corpus collected through this cess may be reserved for payback in case of such a failure.
Advantages of this mechanism:
At this point, large part of the provisions listed above is already in place but are fragmented, making them less effective. It is this fragmentation that is working as a loop-hole for those parking black money in this sector. A property exchange will bring everything on one platform and prevent misuse of information gaps.
This mechanism will make holding of “benami” properties very difficult as all transactions will be identity-linked and thus available for scrutiny by the state.
With such a platform regulating all transaction, legal disputes will be dramatically reduced and reducing burden on the judiciary.
Huge improvement in sanctity and ease of property transactions will have an extremely positive impact on people.
At this point, even after charging huge amount of fees to record and register the transfers, state is not taking any responsibility of the title.
Through the exchange, state will now stand as a guarantor for the transaction; so, in case of any defect in title, monies invested can be recovered by people. This will change the entire perception regarding the role of the state in this matter.
Though a lot of wealth is locked-up in this asset-class, using it for business liquidity is a complicated process. With such a transparent system in place, financial institutes will find it extremely easy to assist people in accessing locked-up wealth in the sector.
The idea proposed here is not entirely alien or new, but it is not proposed as a consolidated and seamless structure yet. With enabling technologies now easily available, it is an obvious transformation that is inevitable.
Conversion of land records and GPS aided land survey is already going strong, so the missing component is a well-structured regulator and an IT backbone to serve as a property exchange, making it a low-hanging fruit, especially for progressive states like Maharashtra, Gujarat etc.
As states armed with such an exchange will be preferred destination for investors looking for safety of ownership, it can lead to all states following the suit without too much resistance.
If India can shift to such an exchange that removes information barriers in this asset class, we can see a massive surge in FDI too.
If real estate transactions are shifted to such an exchange, it will be The most transformational idea for our nation.
A citizen looking forward to a prosperous India.