Corruption in Real Estate Business | What are the biggest problems in real estate?| Real Estate Business Case Study

image source: the economic times

From year 2008-2009, the whole world saw something that no one had even dreamed of! US, the world’s largest economy crashes. And it affect whole world. Some economies that were highly dependent on US, became bankrupt. In year 2000, after dot-com bubble, IT sector suffered a huge loss. People were continuously selling stocks of IT companies. People saw a ray of hope after this loss, people turned towards real estate. It is about year 2001. When many people were investing by seeing the growth of real estate. And this is where it all started. For purchasing real estate properties, banks started giving loans to those people, whose economic condition was very good. At that time, bank interest rate was just 1%, which made this thing more affordable for people. But when banks started going out of money, banks gave this opportunity to investment banks, so that they can raise money from investors. After which investment banks like Lehman Brother and Bear Stearns, started selling CDOS, which is collaterlized debt obligation to investors. And that was something from where it all started. Due to wrong biased partially verified AAA ratings and CDOs, which Credit Rating Agencies used to give. The demand of CDOs in market started increasing. Seeing this opportunity, banks started to give Subprime loans. That means, giving loans to those people, who don’t have the capacity to repay those loans. And this was the biggest blunder in history.

After some years, the bank interest went from 1% to 5%. As expected, because of hike in interest, subprime loan takers started defaulting loans. And very soon, this turned out to be a volcano. Banks started to take property back against which subprime loans were given And as a result, banks had so much property, and this is just like supply is extremely high and demand is low. And eventually, real estate prices started falling. And this is where the recession flooded. real estate bubble bursts. People started going bankrupt. Giant investment banks like Lehman Brothers that were selling CDOs, that went bankrupt. That loss amounted $943 billions to US. And in no time, the companies which invested in real estate stocks, they went bankrupt. And it changed Indian real estate market forever.

How it Started

Well, according to Pali Literature, ‘Brahaspati’ is such a person who has house and land. On the other hand, Dalits were those people who did not have any real estate. And you know what, This thing is in the mindset of us Indians till date! Till today also, The bio data of that boy get widely circulated in the village, who has many properties. Doesn’t matter, whether he does job or not. But if you look very closely, The real estate revolution in India started after Independence Day! In India, post real independence real estate conditions were something like this. India’s highest economic city, Lahore, its two parts, Chandigarh and Gandhinagar, both were planned as a dream city by PM Jawaharlal Nehru. In India, after 1990s, International Direct Investment started happening in India. And IT sector of India boomed rapidly.  as a result, Gurgaon, Pune, Noida, Mumbai, all these cities started developing. in early 2000, this International Direct Investment, started indulging in various real estate projects like Spencer Plaza in Chennai, and Ansal Plaza in Delhi. Infrastructure and Real estate growth was increasing continuously. But the sad part was, just like SEBI was regulating Indian stock market, Gold council and rating standard was regulating Indian gold market, and on the other hand, there was no one to regulate Indian real estate market. This was a big question? Due to no government authority, Bribery and corruption, all these things had become a common practice. And our country got its solution as RERA, i.e. Real Estate Regulatory Authority. The actual implementation of RERA was done after demonetization, but things started to change after 2019. Real estate conditions during COVID-19, according to prop tiger the Big metropolitan cities like Delhi, Pune, Mumbai, Gurgaon, 8 major markets are formed inside all these cities. The markets which were highly suffering. If you look at the statistics, in 2019, where in India, 92726 real estate units were sold, whereas in Q2 of 2020, this number dropped to 19,038 units. And the Kolkata market suffered the most. Where in 2019, 2864 units were sold, this number dropped to 183 units in 2020. The impact of Covid 19 has been seen in many sectors of the Indian economy! Just after two months of pandemic started, Indian economy dropped from 3.1% profit to 23.9% loss. Which was a very big loss for the country. But the interesting part is, due to continuous migration, urbanization will increase more in India. which will result in massive increase in house demands. the demand of houses in big metropolitan cities in India, will reach from 91.6 million in 2021, to 213 millions till 2050, which is a really big number.

FSI – Floor Space Index

If you look very closely, you’ll realise, the size of people’s house is decreasing, but on the other hand, house prices are increasing rapidly. Have you ever wondered why this is so? Why India doesn’t have high skyscrapers like other countries? Well, the reason behind this is FSI – Floor Space Index. Suppose, there is 2000 square feet plot of a building. If the FSI is 1, you can make only one floor on this plot. And the area covered of this plot will be 2000 square feet. But if the FSI is 2, you can build 2 floors and its total area would be 2000 square feet. So basically, if you want to build more floors on a plot, you’ll have to reduce the floor area. And if you want to increase the area of those floors, then you’ll have to reduce the floors. India’s FSI ratio is very low as compared to other countries. Where Singapore’s average FSI is 23, India’s FSI lies between 3-5. And this is where accommodation becomes a problem. India is looking forward for FSI improvements.


Samanta Das, chief economist of National Research told that, withholding FSI, Indian buildings should have high level facilities. It’s common sense, that if you are making a building of 20 floors, that too without lift, children park, large parking area, then this whole plan is a flop plan.


In cities like Mumbai and Noida, there are many skyscrapers with minimum 25-30 floors. Technically, there should be no shortage of space. But still, people are not able to afford houses in these cities. Why is this so? Corruption! Have you ever wondered, after RERA, why houses are so expensive in metropolitan cities? For example, if you go to buy 1BHK in Andheri, you’ll have to spend minimum 3 crore rupees. In places like Delhi also, you won’t get any decent house below 1-1.5 crore. So, now look at this very very carefully! In India, corruptions happens in two parts in real estate.

Buyers Black Money

For example, you are an honest tax paying citizen. And you go to buy a house worth 2 crore. So technically, you are giving this 2 crore rupees as white money. You must have paid tax on these 2 crore rupees. So let’s suppose, you’ve given 20% tax. So technically, you earned 2 crore 40 lakh rupees, in which you have paid tax worth 40 lakh. It’s for those who is an honest tax paying citizen, who has all money as white money. But if you are not an honest tax paying citizen,  Suppose, you have black money which you want to invest in real estate. So, basically what would you do? You’ll pay circle rate as white. For example, the house is worth 2 crore. And its circle rate is around 40%. That is 80 lakh rupees. Circle rate is the minimum amount, which a property buyer has to give at the time of purchasing. Government set this rate. So if the circle rate is 40%, so a person gave 80 lakh white money for the house worth 2 crores. And the rest 1.2 crore rupees, is given as black money by that person. But the question is that the person who is paying in black money, on what thing he would pay tax? Well see, people who do payment in black money, pay tax only on such amount which they have paid as white. Which is the circle rate i.e. 80 lakh rupees. If you count tax as 20%, it becomes only 16 lakh as tax. So technically, people use black money to buy real estate because they save a lot of tax.


The real money behind this black money rotation is bribery. In our country, bribery happens everywhere, from small to big level. That’s why, it is impossible to end this bribery at root level. 1%-2% people take 41% of the bribery. And most bribe is given to get things done on time. You can see all the government things take so much time. To reduce this time, to fix this thing, people give bribe. 16% bribery is given to save their security, their business security and their interest. Shiraj Parmar who was the builder of Mumbai based Cosmos group, killed himself by shooting with a A32 caliber pistol! It was written in his death note, because of politician, red-tapism and extortion, he had to take this terrific step. In real estate, bribery has increased to 1000-1200 per sq.ft, to start the project early. And this thing is like a loop. Politician takes bribe from builder, and builder takes bribe from rich people. And this is where middle class people like you and me get stuck! Because it is super simple. The bribe politicians take from builder, builders add that amount in their houses, and as a result, house prices increase a lot. This is the reason, in spite of numerous flats in Noida, no one is able to buy them. This cycle is very simple. Politicians take bribe from builders, builders add that price in their house prices, and after that, buyer bears this whole price. It becomes very expensive to afford the house. At that time, politicians raise this matter that housing is a very big problem in our country. And by making it a political issue, they take votes from buyers and win election again! And if it continues, the day is very near when the prices of houses will increase so much that no one will be able to afford them! And as a result, the history will repeat itself. There will be a crash again! It is seen in many cases where people pay builders by taking bank loan, and builder escapes the country. And bank doesn’t take its responsibility. Where people get stuck in our country, And that is why Indian government has to take 40-70 approvals. Whereas in Singapore, things get done in 1-2 approvals. All of this happens due to our collective bribery mindset. And this needs to be fixed as soon as possible. And the sad part is, we can’t solve this corruption on individual level. Because of the corrupted people in the government, illiterate and dishonest leaders at the state and national level, we are behind even these small nations.


As an individual, what can you do? These are the things you should do whenever you go to buy a real estate.

1. You should check the reputation of the builder in market. If you feel anything suspicious, or you get big fraud cases against him, be careful at that time and don’t give project to him.

2. The builder you are buying real estate from, you should confirm with 2-3 brokers about that builder.

3.  If you are opting for a loan while buying real estate, then strictly order banks to check the documents of the builders and the plan. And whenever you are buying any real estate, check all the things which builder has promised, like tiles, furniture paints, whether all these things are available or not. Because by doing this, builders save a lot of money. 

And see, if the builder is providing ample space for parking, garden and children park, If you are buying a house! 

4. It is very important to check, whether this builder is RERA verified or not. 

So as an individual, we have only one option and that is, to keep us suspicious. And we should know, that in today’s date the prices of houses are increasing, what is the reason behind it? And that is… the corruption behind it.

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