Corruption big dampener for Bengaluru real estate

Bengaluru: Multiple stakeholders in Karnataka’s real estate industry including those in Bengaluru, have urged the State government to increase the speed of various approvals required for launching new projects. They also appealed that the space for subjectivity of government officials and those in power in approving projects should be reduced as it is giving rise to instances of corruption.

“Let’s not talk about bribe. It is always there in real estate industry across the country. It is no exception here. But the money asked by government officials or political personalities is different from one builder to another. For instance, a builder with one project may have to pay higher rate than a builder with 10 projects. Such amount also depends on relationship,” a real estate sector insider based in Bengaluru told Bizz Buzz on condition of anonymity.

“At the end of the day, who suffers from such corruption. It’s the end users. Because the developer will simply pass on the cost to the buyer. So, such practices are pushing up home prices apart from discouraging honest businessmen in this field,” the person added.

Indian real estate sector has a bad reputation of utilising black money earned from various illegal means. Due to the opaque nature of funding, many fund managers also stay away from this sector altogether.

Recently, a social media user’s post on ‘X’ has gone viral, which highlighted the problem.

“India’s Real Estate is built on Black Money. The sellers want to sell in black because of the high capital gains structure (20 per cent on long-term capital gains). And, buyer wants to pay in black because of the high stamp duties. As a result, there is a massive divergence between the rent & buy spread in India, unlike most geographies,” Akshat Shrivastava wrote.

Such opaque nature of funding has encouraged many political leaders and government officials to demand bribes from the real estate developers.

In October last year, former chief minister HD Kumaraswamy had alleged that the incumbent Karnataka government had fixed Rs100 per square foot as bribe from builders in exchange for clearing files.

“By giving an excuse for the Lok Sabha elections, a powerful person in the government is trying to extort Rs2,000 crore from builders,” Kumaraswamy had said without naming any minister.

While such allegations were never proved, those working in the industry said bribe was a regular phenomenon in all kinds of real estate deals.

“Such menace has come down a bit with many small real estate players vanishing from the scene with increasing formalisation of the sector. However, unless the root cause of black money infusion into the real estate sector is addressed, corrupt practices will not decline,” another industry insider said.