The government’s plan to seed Aadhaar with properties will not only help in flushing out black money that is parked in real estate, but also bring down prices that have gone through the roof.

Black money in properties is an open secret, hardly something that will raise eyebrows.  This move to link it with Aadhaar is expected to identify benami properties. It will be much easier for enforcement authorities to act, once they identify properties that are owned by people who are paying little or even no taxes.

Pumping of unaccounted wealth in properties has led to spiraling prices. First time buyers are now finding it increasingly difficult to take the first step in the property ladder as properties have become prohibitively expensive. All this would change once the Aadhaar linkage takes place.

After demonetisation on November 8, 2016, prime minister Narendra Modi had spoken about targeting benami properties. This seems to be now happening. After Aadhaar linkage, it would be virtually impossible to hide black money in the real estate sector.

Union housing minister Hardeep Puri told ET Now that this move would go a long way in sucking out black money from real estate, and on cracking down on benami properties.

“Seeding Aadhaar to property transaction is a great idea but I’m not going to make an announcement on that. We are already linking Aadhaar to bank accounts, etc, and we can take some additional steps for property market also,” he said.

Though Puri did not give away the exact contours of the plan, the first indication of the government’s intention had become clear in March this year when a pilot project was formulated to link land records with Aadhaar number in Pune.

It would include the Aadhaar number of land buyers and sellers being entered into the 7/12 extracts or property documents. The 7/12 extract is a revenue document needed for owning land.

Pune Divisional Commissioner S Chockalingam said the linking would prevent impersonations and other frauds. "If the property document is linked with the Aadhaar numbers of buyers and sellers, it would help check cases of fraudulent deals," Chockalingam told the Times of India.

Another interesting development is the government initiative to map all addresses digitally.

The department of posts - which is under the ministry of communications — has ordered a pilot project that will accord a six-character alphanumeric digital address+ for every property for three postal pin code locations.

The idea is to provide e-locations (like on Google Maps) for the addresses therein and then provide possibilities to link them to other information, such as property title and ownership, property tax records, information on utilities like electricity, water and gas, reported Times of India.

The eLoc (e-location) pilot project has been approved for two postal pin codes in Delhi and one in Noida, following which the plan is to identify national expansion plans.

This particular project will be a goldmine of information for the authorities. After Aadhaar number is linked and eLoc project is complete across the country, the tax men will be able to get all information about any property at the click of a mouse.

Over the past few months, there had been an online buzz about Aadhaar number being linked with property transactions.

The government was, however, quick to deny it.

A PIB release said:  “The letter attributed to Cabinet Secretariat on Digitalisation of Land Records & subsequent linking of the same to AADHAR, being widely circulated in the sections of social media is completely fake and mischievous. It is clarified that government of India has issued no such letter. A police complaint has been filed in this regard and the matter is being investigated.”

That particular letter may well have been fake, but the proposal was certainly real. This is borne out by what Puri is now saying.

The government is also working on a plan to have a central registry, which will be a database for all commercial and residential properties that are linked to Aadhaar. This will be a key part of economic as well as land reforms.

A study on black money in real estate sector carried out by National Institute of Public Finance and Policy said that the use of unaccounted money in the real estate market in urban India has emerged as a major problem in recent years.

“While its dimension is not known accurately, the growing influence of black money in many transactions of real estate is commonly accepted. The process of economic reform and liberalisation has not only opened opportunities for investment in various manufacturing and service activities by domestic and foreign investors, but it has also significantly increased the demand for land and property for the operation of these activities, residential and office premises, and thus increased the pressure on available scarce supplies of land and built up property. The fungibility of undetected money between the capital market and real estate has further fuelled the scope for the greater use of black money and the push to land and property prices in the course of liberalization,” said the study.

It observed that a major concern of the use of black money in the real estate market is its distortionary effects on prices, although this also causes significant welfare losses due to widespread evasion of taxes on transfer of immovable properties on the one hand, and the denial of the vast majority of the population from access to affordable housing because of the concentration of the black-money-based real estate industry on the high income group. The residential land and buildings in urban India in general, and metropolitan cities in particular, have registered a steep increase in prices in recent years.

A FICCI document said that about a third of India’s black money transactions are believed to be in real estate, followed by manufacturing, and purchase of jewellery and consumer goods.

The real estate sector in India constitutes for about 11 % of the GDP of Indian economy, as these transactions involve high transaction value. In the year 2012-13, real estate sector has been considered as the highest parking space for black money . Due to rising prices of real estate, the taxes applicable on real estate transactions in the form of stamp duty and capital gains tax may result into tax evasion through under-reporting of transaction price. This leads to both generation and absorption of black money. The buyer has the option of using his black money by paying cash in addition to the documented sale consideration. This also leads to generation of black money in the hands of the recipient.