In short, real estate is a huge choke point for the economy.
In Vancouver a development cycle takes at most about two years and a
lot less for an ordinary build out requiring no zone changes. This
includes public input as needed and rezoning profits are siphoned off
by the city in the process. This last is not universal outside
Vancouver, but it is the natural trend. Thus no reward exists for
inappropriate bribes.
Thus planning begins to bite and the playing field is seen as
essentially level.
From this, it appears that most of what is needed is already in
place. Take away the gimmes and rationalize the approval flow and
the garbage ends. The city may even get the coin to upgrade and
modernize their information systems.
In time the bribe culture may slowly go away as it has done elswhere.
India: Why land is
at the centre of all scandals
By Alam
SrinivasBusiness analyst
9 December 2012 Last
updated at 19:51 ET
India's real estate
sector is one of the worst offenders for generating illegal money
Recent estimates indicate that the size of India's
shadow economy may vary from 25% to 50% of the country's annual gross
domestic product (GDP).
Among the 176 nations
ranked in Transparency International's Corruption Perception
Index (2012), India stood at 94, which was a lot worse than Brazil
and China.
India's property
sector is possibly the worst offender. Barun Mitra, the founder and
director of the Delhi-based Liberty Institute, has calculated that
all the land transactions, including those related to natural
resources like mining, generate $20bn (£12.54bn) to $40bn of illegal
money each year.
That equals 1%-2% of
the GDP.
This is also evident
from recent allegations made by activist-turned-politician Arvind
Kejriwal about links between the Congress Party president Sonia
Gandhi's son-in-law Robert Vadra and the country's biggest
real estate developer, DLF.
Here are five reasons
why the real estate sector contributes so much to the black economy
in India.
A government
report concluded that the shortage of residential houses in
urban India would rise from 24.71 million in 2007 to 26.53 million in
2012.
In addition, there is
a huge pent-up demand for commercial spaces and land for building
factories and huge infrastructure projects such as roads, ports and
power plants.
Despite the huge
scarcity of real estate, thousands of owners hoard properties and are
reluctant to sell because they expect prices to rise in the near
future.
The combination of a
demand-supply mismatch and speculative urge provides opportunities
for bribery.
Experts believe that a
majority of real estate deals have "white" and "black"
components, which implies that a part of the price - up to 50% in
some cases - is paid in cash to avoid paying tax.
For both the buyer and
seller of property, the taxes are too high. In many cases they can
rise above 10% of the value of the property.
While the buyer pays a
tax to register the land in their name, the seller has to pay capital
gains on the difference between the purchase and sale prices.
So there is an
incentive on both sides to understate the price in a bid to avoid the
taxes, and pay the difference between actual and declared values in
illegal money.
However, the
government hopes to correct this distortion. Under a new bill to
establish a central property regulator, the cost of land registration
may be reduced to 5%.
In his book, The
Mystery of Capital, Hernando de Soto has argued that a principal
reason why capitalism does not work in developing and under-developed
nations is because the ownership rights of land and property "are
not adequately recorded".
Hence, "these
assets cannot readily be turned into capital". By contrast, in
the developed nations like the US, "every parcel of land, every
building is represented in a legally binding property document".
Land records in India
are opaque, stored in inaccessible places, and most of the ownership
is disputed either in a court of law or because of family fights.
The lack of
trustworthy online ownership data and the use of incomplete documents
make it difficult for both buyers and sellers to enter into property
transactions with complete confidence.
Thus, there is a
tendency among sellers with disputed records to demand payments in
cash.
The only buyers who
can enter such a market are those with access to illegal money.
Now, the government
has proposed that only those states that have their land records
online can access central funds for welfare schemes like the
Jawaharlal Nehru National Urban Renewal Mission.
Although every city
and town has its master plan, which designates areas meant for
agriculture, residences and offices, these can be arbitrarily changed
at any given time by the local authorities.
Thanks to such
official discretionary powers, there is a tendency among builders,
estate agents and powerful individuals to abuse political patronage
to change the land use of their properties.
As is indicated from
the allegations made against Mr Vadra, changing land use from
agricultural to commercial can treble and quadruple its price within
a few months.
Similarly, there are
huge opportunities to buy land in advance near an upcoming highway or
metro train track, whose value is likely to multiply once the project
comes through.
Here too, political
links help to know the status of such projects in advance.
These anomalies lead
to under-the-table payments and bribes to grab such favours.
To complete a
sizeable property project, any builder in India has to get almost 60
approvals, produce about 175 documents, and deal with 40 central,
state and local government departments.
Estimates indicate it
may take a builder three to four years to complete the official
paperwork and get all the requisite bureaucratic clearances.
There is, therefore, a
tendency to pay bribes to politicians and bureaucrats to speed up the
process.
At the same time,
individual sellers who are unable to deal with the red tape demand
their pound of flesh in cash payments so that they can evade taxes
and earn extra bucks.
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