Saturday, February 21, 2009

For a responsible citizen, is investing in land the wrong thing to do?

Like a few other NRIs, I got carried away during the boom years of Bangalore Real Estate and invested in land. I tend to think I am a responsible citizen, so in order to avoid the normal trappings of black money, went with a 'BDA approved developer' in an approved layout. All the money I put in was accounted for money - directly from my savings earned through my full time job. I made sure the money I paid was properly accounted for, receipts issued and so on.

To my surprise, at the time of land registration, the land was being registered for a fraction of what I paid for and the rest of the money going towards 'community development' towards the developer. Again, since this was all documented correctly in the documents I signed and since I had written proof, I didn't think twice about this. I was now a proud land owner in Bangalore.

Early 2007, I visited India and tried to sell the land. I was told that the best deal I could sell the land was through a 50:50 split of black vs white money. Even if I find a buyer to pay completely through white money, I would run into trouble trying to register the land at that face value, since the face value might be much higher than the prevailing rate or the rate the Government sets as fair price value.

Now the quandary. I dislike black money. I strongly feel it feeds corruption, feeds the mafia monster and in general prevents India from truly becoming the great nation it ought to be. From a pure investment point of view, as white money, I have barely beaten the Fixed Deposit rates offered by the banks and I have generated an equivalent amount of black money. The preferred way of disposing off the black money would be to re-invest the money into real estate, thereby feeding the corrupt system even more fodder. I disliked the idea and I haven't sold the land yet.

Every person I talk to treat this with an very casual attitude, "Every one does it, so what is the big deal?" - "There are much bigger fish to fry in India, no one comes after you and me".

In my view, it is pretty callous and the domino effect caused by many of us small investors is what drives the parallel Indian black economy. The more you feed the mafia monster, the more it grows. It controls countries in the long run.

Hence the title of the blog. For a responsible citizen, is investing in land the wrong thing to do? To be very clear, I am not looking for suggestions of what to do with black money - I am looking to hear from you what responsible citizens would do to avoid the black money mess in the first place.

4 comments:

DhImAn said...

You have a dilemma because you choose to define and label things.

1. Responsible citizen

2. Investing in Land

3. Right thing to do

4. Black Money

Lets examine each, shall we?

1. Who is a responsible citizen? Is it someone who blindly follows all laws regardless of the idiocy or illogic of the laws themselves, or the corrupt political motives of those who make them? There are more written laws in the US or India or Britain than can humanly be understood even by lawyers. However, ignorance of a law is not a defence in court.

The law, it is said, is an ass. I happen to agree. Law is neither logic nor morals. It is the expedient course of action that satisfies innumerable special interests.

So if you don't even know many laws, you ipso facto cannot be complying with them, ergo you (or I) are, at best not a responsible citizen, and at worst, a felon.

There is also the consideration that a truly responsible citizen has the onus upon him of inciting change for the better. Change for the better would be for a country to abandon fiat money and go to commodity money. What have you (or I) done towards this goal? Nothing I dare say.

So sorry, we are not responsible citizens to begin with, even in the most lax usage of the term.

2. Land is not an investment, again by any loose definition. An investment returns an income. Land returns none, unless you farm it or do some kind of economic activity on it. You live in the US, so evidently you bought the land to sell at a higher price. Purely from an economics standpoint alone, you made a mistake: land is not an investment.

Also by buying land in the hope of selling it off at a higher value later, you added air to the bubble, or fuel to the fire - choose your metaphor. Evidently this was quite in contradiction to what a "responsible citizen" would do. See point 1 above. Responsible citizens do not fuel bubble manias.

3. What is right? What is wrong? These are hard questions to pontificate upon for a collective; most people in the world are merely trying to survive. For them, the boundary between right and wrong is quite the spectrum of gray shades.

There is a saying in Sanskrit which loosely translates to something like this: "From all the lakhs of verses that Vyasa wrote, there is only one lesson that emerges: To do good unto others is right and to do evil unto others is wrong." The reference being the Mahabharata, of course.

Where is the good in buying land and hoping it will appreciate in value? Where is the evil in selling it? These are voluntary transactions between two parties. If you don't intend to harm someone, why do you worry about what is "wrong"? How do you define that anyway?

4. Fiat money implies an income tax. The issuer of fiat has to reduce the ability of people to actually use their money, otherwise the system itself will collapse in hyperinflation. Pursuant to point 3 above, when people are just trying to survive, avoidance of taxation is actually the natural thing to do. After all, most people in India don't have enough anyway, without the government taking away a good quarter or more of their money.

Think - if the government can merely issue money with the stroke of a pen or the press of a key, why not do that rather than tax its people? When you find your answer, you'll find out why taxation is absolutely required, and why people go to great lengths to avoid it.

Of course, black money is just money that hasn't been declared to the government and no taxes have been paid upon it by the individual holding it. However, it was most likely earned legitimately, such as by selling goods. The buyer of those goods also likely obtained it legitimately, say as salary, on which taxes have already been paid.

But government is not satisfied with the first tax: it wants more and more and more: taxes on every transaction, every deposit in a bank, every hovel traded, even if it means that its citizenry will starve.

Now, is it the duty of a responsible citizen to abolish such a system or is it not? Is it also not the duty of a responsible citizen to actually hasten the demise of such a system by whatever means necessary, such as using black money?

I know - I'm kidding. What I want to demonstrate is that your simple question isn't quite as simple to answer within the framework of ones own logic, morals and ethics. I also want to demonstrate that actions that destabilize an existing system and replace it with a better one for everyone are eventually hailed as revolutionary, but are quite often illegal when committed.

Remember; Bhagat Singh was a criminal as per the British law, and so was George Washington. Washington would also have been hanged under British law had events been different.

Even your namesake, Obelix, was a criminal in the eyes of the Roman Law. And yet we know who the real criminals were.

Unfortunately the question you ask has no easy answers but hopefully I have added some value to the debate.

Anonymous said...

Read this.

http://blogs.livemint.com/blogs/simple_equation/archive/2009/01/24/real-estate-and-the-corrupt.aspx

shayna said...

Do a Robin Hood, play the system and direct the percieved black income towards charity.

Gandhiji said '' The reward of charity is the oppurtunity to indulge in it''

Peeyush said...

Do your duty of being a responsible citizen by selling off the land, pay all the taxes due on receipt of white income and convert your black money in white by disclosing it to the tax department. Happy.
A tax Consultant here.
see my site on GST in India. www.gstindia.com