The under-valuation extortion racket

The stamps & registration department, which had revised downward the apartment prices last year to help builders, has now withdrawn that benefit. Reason: The economy is looking up, while the department’s coffers are getting depleted. In 2009-10, the department, one of the highest earners for the treasury, faced a shortfall of Rs 330 crore compared with the previous year. According to officials, during the recession, builders had complained the apartment rates fixed by the government were higher than the market rates and they were not able to sell their flats. Subsequently, the department decided to revise the rates on a case-to-case basis.
    
D Rame Gowda, the secretary of central valuation committee for guidance value revision, said, “Individual revision was taken up to boost the realty sector which had suffered during recession. Now things are improving and we have stopped any further revision. Until the next guidance value revision for Bangalore Urban and Rural, which may happen by next April, there’ll be no changes in property rates.”

A CASE STUDY - Eta Gardens on Magadi Road had applied for guidance value revision last year as it found the value fixed by the government too high. After comparing the rates with the other highend properties in the vicinity — Brigade in Rajajinagar and Mantri in Malleswaram — which were lesser than Eta, the department brought the rates down.
    
Bangalore contributes a major chunk of revenue as property transactions are high compared with other parts of the state. The recession-hit realty sector took a backseat in 2008-09. A sum of Rs 1,979 crore was collected through stamp duty and registration fee during that financial year, and Rs 1,807 crore collected during 2009-10, a shortfall of Rs 172 crore.

For the full report in the Bangalore Mirror, click here

Essentially, therefore, there already exists an ongoing mechanism to take care of both the developers (and, buyers') as well as government's interests. So, where is the need for the continuance of the 'under-valuation cell'? Well, there's just one purpose, and that can't be allowed to continue.

On second thoughts, the sub-registrars can be issued guidance values & asked to register properties only at or above those values, nothing less. This might make the 'under-valuation' cells redundant. Sub-registrar offices can be audited periodically to ensure they stay in line.

Exactly - that's all there's to it.

Now, the market prices of properties can vary according to various factors.
A friend of mine living in a posh flat in Indiranagar, was suddenly faced with the reality of a 'darshini' coming up on the neighboring plot, which earlier had only a small house with large trees. He bought the flat paying a premium, and after an unsuccessful battle to prevent the darshini establishing, he has now sold the flat at a discount and moved out elsewhere, since he and his family members couldn't quite adjust to the noisy goings on next door.

On the other hand, when the roads in our locality got done up, the market rate in ours as well as neighboring complexes went up by atleast some Rs 500 per sft.

In all such cases, if you leave it to the discretion of the sub-registrar to decide on the value, it is plainly providing room for large scale corruption, which invariably leads to individuals enriching themselves at the cost of the exchequer.

Well, isn't it all too evident to have to be spelt out this way? And, in spite of it all, if the government is not doing what is required, you know the reason too. It's time the civil society got together to demand these corrections.
 

The Hindu report of 14/08/04 (for the complete article, click here):

All these hardships can be avoided if the guideline value is fixed following a proper procedure so that the difference between it and market value will be marginal.

For this, reforms are needed in fixing guideline values of land in Tamil Nadu. The procedure adopted in neighbouring Karnataka can be taken as a guide.

As per the Karnataka Act, a Central Valuation Committee (CVC) shall be constituted comprising of the chairman, who shall be the commissioner of stamps, and representatives from various departments which include Directorate of Town Planning, Bangalore City Corporation, Bangalore Development Authority, Income Tax Department, Karnataka Public Works Department and Federation of Karnataka Chamber of Commerce and Industry.

The need for including the representatives of officials of the local/planning authorities is that, one of the main factors to be considered in assessing the Land Value is the Zone use of the land as prescribed by the planning authorities and the maximum built up area that can be constructed in the land as per the Development Control Rules. A representative from Income Tax department is included because the guideline value is considered the base for computation of capital gains tax if the guideline value is higher than the sale value.

The Karnataka Act envisages the constitution of market valuation sub-committees in each sub-district and district for the purpose of estimation and revision of the market value guide lines of the properties. The members of the sub-committees are drawn from departments of Revenue Survey and settlement Public Works Municipal Councils or Town Panchayats.

Well, I guess, fertile brains can subvert the best of intentions

 

I have today shot off a letter as below to the Karnataka Lokayukta, enclosing a copy of a 'position paper' (UV1A, attached to the original post in this blog), for whatever, it's worth. I will be sending a similar letter to the Law Minister, Mr Suresh Kumar, also.

Sub: Anomalies in stamp duty valuation pertaining to property registration  

Attached is a 'position paper' authored by me on the subject of "anomalies in stamp duty valuation pertaining to property registration" in the state. Quite as stated, the anomalies have resulted in the 'stamps and registration department' gaining the dubious distinction of topping the list of government offenders on “www.ipaidabribe.com”, going by a recent report in the Times of India.

The remedy very simply lies in the government issuing necessary notifications to treat the 'guideline market value', as announced from time to time by the duly constituted Central Valuation Committee, as the final stamp value, and simultaneously closing down the under-valuation cell, again as detailed in the position paper.

I am sure you will appreciate the seriousness of the anomalous position, and that you will do the needful to have it corrected earliest.

Should you require any further details in the matter, I will be most pleased to provide you the same.

I await to hear from you.

@ Bharat  -  The pattern being adopted by the undervaluation cell appears to be to target some 25% of new properties registered, in some arbitrary fashion, in about a year from the time of registration. Given the complexities involved, people generally engage a lawyer, and have the matter "sorted" out, and that's how the whole thing has got perpetuated over the years.

I wouldn't blame the builders. They generally arrange for the buyers to pay stamp duty as per the guideline value, quite in accordance what must have been the original intent of the Act. But, some 'smart' babu (perhaps in collusion with some neta) deliberately ommited giving finality to the 'guideline value', thereby creating an opportunity for people involved to make underhand money.

 

Letter worded as below mailed to CM, with copy to CS - will follow up with regd letter tomorrow:

Sri Siddaramaiah
Honourable Chief Minister, Govt of Karnataka,
Bangalore

Respected Sir

Sub: undervaluation racketeering

Yesterday's Times of India has reported that the government is planning to set up a "permanent valuation cell" (PVC) to facilitate revision of guidance values at regular intervals. Such a move will certainly provide greater buoyancy to the exercise, bring the guidance value closer to the market value, and thereby help increase government's revenue earnings. To that extent, it can generally be seen as a welcome move.

What the government should simultaneously be doing is to change its nomenclature from "guidance value" to "registration value", and apply it irrespective of the “declared sale value”, in order to provide for finality to the stamp duty collection exercise. For want of this, the "undervaluation cell" has so far been merrily going about making arbitrarily assessments (based on whether Italian marble has been used for the flooring, or Makarana) and extorting underhand money from property purchasers, leading to the 'stamps and registration department' gaining the dubious distinction of topping the list of government offenders on “www.ipaidabribe.com”.

Now, market prices of properties can vary according to very many factors, and keeping track of them on a day-to-day basis is a near impossible task. There may be situations where sellers make windfall gains, as also ones where they make distress sales, all depending on the circumstances prevailing on the day and time of a sale. Allowing for the cell to evaluate each of these sales, and the arbitrariness involved thereof, is where the problem lies.

As such, rather than attempting to squeeze out every paisa that may be due, and in the process letting loose the 'monster' of the cell on the public, the government should satisfy itself with the increased revenue that will accrue now with the setting up of the PVC.

If the government wants still more revenue, all that it needs to do is to increase the stamp duty rate, in which case, it alone will be benefited, and not sundry individuals. The stifling effect it will have on the housing market is of course another matter.

Taking into consideration all of the above, we request you to take the action suggested.

Thanking you,
Very truly yours,
for Praja-RAAG,

sd/-
Muralidhar Rao
(President)

Perhaps, other civil society groups too would like to follow suit to build up pressure?