Home buyers hit as builders demand 30-60% payment in black

By Kishore Rathod | Place: Mumbai | Agency: DNA
At least a hundred new buildings are at different stages of completion off Chembur’s Central Avenue Road. And more than the selling price quoted by the builders, it’s the demand for a high ‘black’ component that’s deterring buyers.
The going rate in the area is upwards of Rs15,000 per square foot, with the average 2BHK apartment costing almost Rs2 crore. This means a cash payment of at least Rs60 lakh for the home buyer. “The builders are demanding at least 30 per cent, and up to 60 per cent, of the payment in black,” says Chembur-based estate agent Dilip Hajwane.
“The land itself is bought with a huge amount of black money, setting off the entire chain of unaccounted transactions,” says housing expert Chandrashekhar Prabhu.
From part of the basic cost of the apartment, to the car parking charges and extra amenities, a good percentage of the deal is settled in cash. “The higher the cash component, the better is the rate you can negotiate,” says Hajwane, adding that the cost of the flat can vary by as much as 10 per cent, depending on the percentage paid in cash. It’s not only builders and brokers who prefer cash payments; even home loan companies encourage the system.
“The black component ends up being the cushion for home loan companies, who have to extend a loan only on the lower agreement value, though the flat mortgaged with them has a much higher market value,” says an industry observer. He adds that home loan companies even facilitate the black component by inflating the loan amount.
This is done by throwing in add-on costs for interior decoration, furniture, and fixtures, knowing that the customer will convert the amount into cash to meet the builder’s obligation.
While the builder manages to evade the tax man, it is the home buyer who has to bear the brunt of the parallel economy. “Not only did I have to convert my white money into black to make payments to the builder, I also had to forego the opportunity to take a higher home loan due to the lower agreement value,” says Hemant Mehta, who recently purchased a 2BHK apartment in Kharghar, and had to take a personal loan of Rs5 lakh at a higher rate of interest to meet all the expenses.
There are a handful of builders who insist on only cheque payments, but it comes at a price. “They invariably demand a price that is at least 10 per cent higher than the rate prevailing in the area. Call it a premium for quality or the price for transparency, at the end of the day, the home buyer has to foot the bill,” says Mehta.
And it just doesn’t end with buying the house. “Even at the time of resale, you invariably get a buyer who insists on a higher agreement value to qualify for a bigger home loan, leaving you saddled with capital gains tax even if you have not earned any real appreciation. And the ones who have the black money offer a lower rate for your apartment. Either ways, you are jacked,” says Thane-resident Milind Kudva.
Developers, for their part, maintain that the incidence of unaccounted transactions has declined over the years. “Given the sheer volumes that leading developers are handling, it is difficult for them to account for cash transactions and maintain the books. Unaccounted money is associated more with smaller centres and local developers who operate on a small scale,” says Boman Irani, CMD, Rustomjee Group & Secretary, MCHI.