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News & opinion

21 JUN 2018

In conversation with Training and Product Development Head, RICS South Asia

Rajiv Nehru talks about black money in real estate, benami properties and how e-governance can possibly end bribery and corruption.

It has been almost two years, since the government cracked down on black money in the economy through demonetisation. Would you say that demonetisation had the desired effect of reducing black money transactions in the real estate sector?

Demonetisation as a standalone reform measure did not reduce black money transactions in real estate. Post demonetisation, the government introduced several other reform measures such as RERA, making PAN (Permanent Account Number) card mandatory for purchase of property, linking Aadhaar (unique identity number given to Indian citizens) to bank account etc. Cash was in shortage after demonetisation and if someone took out substantial amount of cash from their bank account, there was a fear that they might be watched. All these factors deterred illegal financial activity in the sector.

Are you saying that there is no black money in real estate now?

We have not got rid of it completely. Black money still finds its way into real estate transactions. The difference is that black money holders now invest in real estate projects as financiers of the project instead of buying properties.

What about “benami” properties? The Indian government has made it clear that it will go after such illegal transactions? Has there been a reduction in such transactions?

There is more scrutiny now from the Income Tax department, because most property transactions today require the buyer’s Aadhaar number. Bank accounts are also linked to Aadhaar. Linking bank account and property purchases to Aadhaar has made it easier for the income tax department to track illegal transactions. This has made it difficult to buy property in ”benaami” form (buying a property in a third person’s name to avoid income tax scrutiny). The government has sent out a strong signal that there will be crackdown on properties acquired illegally.

India also has a problem of bribery and corruption in real estate. How should the government approach this problem?

Opportunities for bribery occur, when there is a lot of human interface. For instance, before launching a real estate project, developers have to secure 30 or so approvals. This gives way for corruption and demands of bribery, because those in power are aware of the high stakes involved in the projects and they take advantage of it. If these approvals are given online, there would be very little scope for corruption. Reducing personal contact between government officials and companies can reduce opportunities for bribery by putting an end to discretionary powers. E-governance can promote transparency and accountability.

RICS has opened consultation for a standard which will help property professionals address the risks posed by bribery, corruption and money laundering. How do you think this will help property professionals in India?

RICS as an ethical and professional body always lays down ethics and standards for professionals in the built environment space. The problem is professionals in India may not be unethical but the system is so corrupt that it leads to cases of bribery. The system needs to change. We need to look at ways of reducing human interference in every process, say for example in the approval process for real estate projects. Approval system should be transparent and there is no reason why this can’t be done online. If approvals cannot be given online, there should at least be secrecy in the approval process. The person granting approval for the project should not know the person asking for the approval. The scope for manipulation reduces when there is such high level of secrecy.

Rajiv Nehru heads the Training and Product Development division at RICS South Asia. Before joining RICS India, Rajiv was General Manager at Rohan Builders India Pvt Ltd, leading their real estate team of more than 250 engineers and technical staff. He has also been a Director of National Institute of Construction Management and Research (NICMAR), Pune, and was responsible for setting up their Bangalore, Bahrain and Hyderabad campuses. He has worked as a project management trainer and consultant in India, the Middle East and Africa and has trained more than 15,000 people in construction project management.