Are Cash payments for real

estate sales making a comeback

in India?

Are residential property sales up in

2018 . . . NRIs accepting part cash

when selling

The real estate market in India had slowed down considerably since demonetization of high value currency notes and continues to be slow. Cash component was one of the factors that house buyers used as a way to invest undeclared money. Now a year and a half since the sudden November 2016 demonetization announcement, buyers do not seem to be in a rush to buy properties in India, unless of course they find a true bargain. Despite what real estate brokers may tell you, anyone who is trying to sell their property in India, know that buyers are certainly not knocking on their door with offers to buy. What may be selling now are properties for which buyers: 1. Can easily avail loans from banks or home finance companies. And 2. Sellers are willing to accept lower prices due to a slow and competitive market. Cash component in real estate after demonetization Prior to demonetization, cash component for payment of the agreed purchase price of a property was a well- known fact for both sellers and buyers. A large amount of cash was paid and not mentioned when registering the property sale to save registration charges for the buyer and capital gains for the seller. Effective April 1, 2017 the government had banned payment in cash of Rupees 2 Lakh or more for a transaction. Any payment amount of over the Rupees 2 Lakh must now be paid through legal banking channels. There is also a penalty of 100% to consider if caught making cash payments in contravention of the Rs. 2 Lakh rule; the buyer can face a penalty of 100% of the cash component involved if the amount exceeds the 2 Lakh limit. Will Cash Payments for Property Sales come back despite Demonetization? New stringent regulations limit the use of cash in each transaction and require transactions to be fully transparent, however, the fact remains that the cash component was usually meant to be a hidden payment. The cash used was mostly money that the buyer could not or did not want to account for. The use of cash to undervalue property for registration or taxation purposes was illegal prior to demonetization and continues to be illegal now. Unless everyone in India starts declaring their true income and pay their taxes honestly, black money will again accumulate and the use of black money will once more result in cash being used to make purchases in an attempt to save on taxes which ironically means more undeclared cash! After demonetization, many buyers may now not have the amount of cash they may have held prior to demonetization. Sellers may also be reluctant to accept large amount of new currency notes for various reasons such as, legality of the transaction, rumors of fake currency notes etc. However as time goes by, some people will indeed go back to the use of cash to complete property sales. Even sellers reluctant to accept cash may have to chose to either sell to a buyer who offers a lower price or accept a cash component from a buyer paying an unofficial higher price. Old habits are not easy to overcome and getting rid of cash transactions is indeed an uphill task in a country like India. NRIs accepting cash for sale of their property in India The use of cash for real estate transactions is expected to gradually come back. Even now some real estate brokers will tell you off the record that buyers will want to make some part of the purchase price in cash. However, I doubt if many people, especially NRIs will want to sell their properties in India and accept large amounts of cash that they will be: • unable to account for • unable to deposit in bank accounts • unable to repatriate The reality is that NRIs wishing to sell their properties in India may now have to simply accept the market price of the property and accept sale proceeds in a legal manner to avoid problems and easy repatriation of their property sale proceeds. Cash restrictions have brought residential property prices in India to a more realistic level. The large amounts of cash available with buyers has also to a large extent vanished and while cash may enter the market slowly, it may take years before we see things as they were prior to demonetization.