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December 09, 2012

India's Property Shortage, Corruption and Bureaucracy

BBC News - India's property sector is at the center of its corruption and bureaucracy problems.

The BBC article points to two interesting references.

1. A white paper on Black Money in India (98 pages, May 2012) It estimates that the size of India's shadow economy may vary from 25% to 50% of the country's annual gross domestic product (GDP).

2. India's housing shortage is detailed in another report (30 pages)

The shortage of residential houses in urban India would rise from 24.71 million in 2007 to 26.53 million in 2012.


Huge Transaction Costs

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.

Bureaucracy incentives bribery and cash payments

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.


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