"Heroes need monsters to establish their heroic credentials. You
need something scary to overcome."
—Margaret Atwood (Canadian, 1939)
Word
for the day
Duende (n)
Charm; magnetism.
A goblin; demon; spirit.
Malice
towards none
Who has created this
illusion that the government has demonetize 86% of Indian currency?
The current effort is just
an exercise to replace the old high denomination notes (HDNs) with the new
HDNs.
The assumption that some of
the existing HDNs may not be presented for replacement is just that - an ASSUMPTION.
First random
thought this morning
Till May 2014 many termed PM Modi as divine intervention that will
cure India of all its ills. The detractors termed him as Taliban, who will
destroy the core fabric of the Indian society by communalizing it.
Both the extreme views have proven to be mostly wrong.
The history is repeating itself with Donald Trump.
Will history repeat again with Donald Trump?
Cash and Real Estate
Continuing from tomorrow (see
here), I would like to share my understanding of the real estate market dynamics
in India with the readers. Admittedly, my views do suffer from limited
knowledge of the real estate markets, as I know about the practices only in 10
states. I assume the practices are similar in most states.
To estimate the impact of the abolition of old high denomination
notes on real estate market in the country, it is important to understand the
role of cash in the market dynamics.
·
A large part of the land parcels for development
of real estate projects, originate from the farmers or sick industrial units
that have closed operations. In recent times, the government has also announced
release of land parcels owned by CPSEs etc. for redevelopment.
In case of farmers, there is no capital gains tax on sale of
agriculture land, hence no tax motivation to receive payment in cash. The
farmers receive cash in consideration of land sale either out of habit of
dealing in cash, or buyer willing to pay little extra so that he could save on
stamp duty and registration fee etc. In some cases buyers are willing to pay
little extra as they do not have sufficient white (accounted and legal) money
to pay as consideration.
However, in case of sick industrial units, great motivation to
receive cash is present due to (a) first right of lenders on any sale
consideration received; (b) huge tax liability on capital gains; (c)
unwillingness of promoters to share the sales consideration with minority
shareholders; (d) corruption of the nominees of financial institutions on the
board of such companies.
In case of redevelopment of government/CPSE properties, the role
of cash is mostly limited to the corruption in the award of contracts.
·
It is not necessary that the involvement of cash
always leads to inflated value of the underlying deal. In many cases cash
involvement leads to both parties agreeing to lower sales consideration as they
save on taxes and duties.
·
In many cases, the buyer has to convert his
white money into black, as the buyer insist that a part of the sales consideration
be paid in black money. In a large number of cases, buyers are black &
white agnostic.
·
The stock of black money perpetuates the role of
cash in real estate deals as the seller insists on cash because he has to pay
cash in the subsequent deal he is negotiating.
·
The smaller developers accept cash from buyers,
as they sell cheaper and try to save cost by saving on VAT, Service Tax, etc.
payable on the construction material and construction related services
·
The sources of cash that is used in the real
estate deals are primarily (a) bribes received by public officials; (b) money
earned through illegal means like smuggling, drugs, ransom, extortion; (c) tax
evasion by not accounting the full revenue or accounting fake expenses...to
continue
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