It seems that people try to evade stamp duty (a tax imposed on the sale or transfer of real estate) by reporting a low price on the invoice and then paying the rest in cash. The Delhi government’s brilliant idea to solve this problem and get all the tax it’s missing out on has been to fix a minimum price on all real estate. (Incidentally, I am stunned that the Slimes of India, which broke this story did not come up with a pun involving price floors and floor areas. It just goes to show you that there is hope in this world. Or more depressingly and more likely, that the SOI staff doesn’t know enough economics to know what a price floor is.)
Anyway, I can’t see how this will remove corruption. For existing areas, it will of course only reduce corruption. People will be forced to pay at least the price floor on the invoice, but will still make up the rest in cash. But that’s for existing areas.
In the long run, this will of course increase corruption. Real estate developers who are coming up with new neighbourhoods will be bribing local officials to get their neighbourhood classified as a particular class- either upwards or downwards, depending on what they think the market will take. Whenever rates have to be adjusted to account for inflation or changes in market conditions, builder and landlord lobbies will swing into action to get the rates fixed.
We’ve already seen the effect of sixty years of a price ceiling in Bombay. Do we really need a price floor in Delhi?
It’s a move to decrease corruption between the buyer and the seller. Who said it’s a move to remove, or decrease corruption for the government? To cite The Annual Journal of Political Ploys, Vol3, Section 5, Atricle 122: A simple case of Illicit Transaction Internalization.
I think you have interpreted the news item wrongly. I don’t think the government is going to set real estate prices. It will simply decide the rate at which it will levy tax. That is how it is in Bombay. It determines that in a particular area, the going per square-foot rate is 3000 bucks, which means that it will levy tax at that rate, or the actual deal price, whichever is higher. It certainly won’t decide the price at which the actual deals take place. Of course, this means that the government can still be bribed to set a lower rate than normal and there will always be a lag between the government rate and the actual rate, but this lag will be less than usual, and there won’t be petty corruption in every deal, but only at the policy making level.