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Buying a piece of land is out of common man's reach?

Everybody has a dream of owning a piece of land to build his dream house. But I think it is becoming lot more difficult these days, not only because of the high price, but also due to the complexities involved.

I think it is not the high price which is alone cause for the trouble, but the amount of "black money" involved in the whole transaction. Imagine you want to buy a 2400 sq ft land in a suburban locality of Chennai, the asking price is in anywhere in the region of Rs50 lakhs to Rs1 crore. But the saddest part is that at least 50% of the money is demanded in cash by the seller uniformly across the city. The actual price is at least double the guideline value in almost all the localities in the city. The Government loses huge money in the form of Stamp duty and registration fees and these land deals helps to accentuate the spread of black money further.

So far a person who makes a good amount of money as salary but with no "black" money in his kitty is at a distinct disadvantage in this transaction. He has to run around to create a huge amount of money by mortgaging his existing assets and creating the cash portion of the deal. He can't get the housing loan for the portion of the "black" component.

After having decided to do that, you find that the land documents are lying with a bank under mortgage and the seller expects you to pay cash upfront which is a good 60% of the price with only a very minimal documentation, that too, without mentioning about the land deal. Obviously, he can not, when the transaction value itself is only 50% in "white" and the balance in "black". It is really difficult for anyone to deal with such huge sums of money in "cash".

If this is not enough, you invariably land up in the hands of a broker who really rips you. The brokerage is 2% of the value of the deal upto Rs1 crore of property value and 1% above that. For no real service to the buyer, these guys takes home a sizeable amount of money. They neither have full information of the property nor an interest to learn them. The brokers I have met are of very low "value addition" to the deal.

It is truly nerve wrecking to complete a deal only with "white" money or through proper bank loans. That is the sorry state of affairs in the real estate industry today in Chennai. I don't know how long this kind of rates can survive with a huge element of black money. I tried to buy a piece of land for sometime but has completely given it up as the troubles and hassles around this are too high to fight against.

3 comments:

Anand said...

I & Sriram had the same problem when we bought our apartments.

Eventhough we have got preapproval for a home loan for a bigger amount, we aren't able to get the loan to pay for the aptmt as it was registered only at 60% of what we paid.

The only way of getting rid of this problem is frequent reviews of the guideline values maintained by the register offices. In most places, the guide line value is vastly different to the market price. If it is close to the market value, no one can make you to register at a price vastly different to what you really pay.

King Vishy said...

What a coincidence!! I was exposed to this reality only yesterday evening, when I went to meet a developer for a house.

Though my search was in a different city in TN where prices were much lower, and the developer asked for a much smaller amount of "cash component", the fact that this happens is disheartening!

Is there any way out? Apart from buying some piece of land in some remote area and waiting for civilization and progress to help land appreciation?

Venkat Muthukrishnan said...

@ Anand: Surprising that you found the problem while buying a flat. I have seen these issues only when you go for a land purchase. Most of the developers accept cheque payment and they register for the full value. May be, there are still exceptions!
I think the guideline values are being changed every year by State Government.

@ King Vishy: The problem seems to be universal, across cities and towns. Only the quantum of cash component varies.

Is there a way out? Yes, buying properties in auctions from banks, provided you and your family members are not sentimental about those purchases. Secondly, you can wait for a seller (may be, eternally!!!)who wants desperate white money for some other purpose.