Fair Value of Land: Being Unfair to Honest People

Roy Mathew

THIRUVANANTHAPURAM: If one thing that casts doubts about LDF government’s resolve to fight corruption and black money in the revised Budget for 2016-17, it is the proposal to hike stamp duty on registration of land sale deeds from six to eight per cent.

The duty has been raised in preference to the option of raising the fair value of land across the board by 30 per cent.

A higher tax rate leads to increased tendency to evade duty. Hardly anyone would show transaction value above the fair value announced by the government though land prices have been going up. Surely, the government would more or less get the growth in revenues that it is hoping for whether it goes for a hike in duty rate or fair value.

But a decision not to raise the fair value is to be opposed because it promotes black money and dishonesty. It was more than a decade ago that lower rates were proposed. At one stage, an attempt was made roll that back. However, this was again lowered and fair values revised under pressure from institutions which wanted a cleaner system.

However, the power of those dealing in real estate business using black money is great. It is no secret that much of the money from corruption by politicians and officials are parked in real estate. Low fair values help them to invest unaccounted money. The flow of money, which is not hard-earned into the sector, also leads to high rate of increase in value of land.

It has been said that land prices in Kerala used to go up more during UDF rule than LDF rule. However, this changed during the LDF rule last time (2006-2011). At one point, then Chief Minister V. S. Achuthanandan himself had to lament about the rising values of land. He had said that the situation was such that the common man could not buy a piece of land to build a house.

Failure to revise fair values in tune with market prices makes a mockery of systems like submission of property statements by people’s representatives and officials. Even if you want to be honest, you cannot do so. If you buy land at fair value in the records, you cannot show a much higher value in your property statement.

It also places companies which want to buy land using white money in a difficult position.  Citizens wishing to avail a loan for buying land cannot produce an agreement as no seller would sign an agreement at fair value when the real values are higher. The issue is often resolved by illegal means such as signing of two agreements at the same time—one with the real value and the other with the value to be declared at the registration office. This entails certain risks and documents are destroyed at the time of registration.

Even if one decides to suffer a high duty by declaring the true value, not only the seller but also the document writer and even officials of the Registration Department would object. For the document writers and officials, the worry is that high values would have to be shown for subsequent transactions in the nearby areas.

The result is that it renders a large segment of the society—the land owning class, dishonest. This is not healthy for a democracy which needs to nurture law abiding citizens.

Governments are often reluctant to revise fair values because of large scale objections that it may give rise to. Though objections for the poor and middle class are often projected, the real objections come from those dealing in black money.  Officials undermine the process by fixing values arbitrarily, often in collusion with vested interests.

However, it is not difficult to be fair in this regard. Values for farm land can be fixed at a base rate, taking into account fall in values owing to factors like slump in rubber prices. In cities, they could be fixed on the basis of proper assessment by valuators. Once notified, it can even be linked to a local index of real estate prices.

This article was first published in 2016 as a opinion piece elsewhere.