A Bad Bunch: Asset Value Under-Reporting in the Mumbai Real Estate Market

Abstract

Real estate values are often under-reported to avoid transaction and property taxes, and to hide wealth built from tax-evaded income. We develop a new method to extract estimates of under-reporting, and employ this measure in the Mumbai real estate market. This approach compares the bunching of reported property values around government-assessed guidance values with a third-party measure of true underlying transactions prices. We estimate that 13 percent of value in Mumbai real estate is under-reported between 2013 and 2018. Measured under-reporting spikes immediately before increases to government-assessed values, and properties with mortgages from public-sector banks and banks with high non-performing assets exhibit more visible evidence of under-reporting.

Keywords: real estate, under-reporting, tax evasion, mortgages, bunching

JEL Classification: G21, G50, H26, H71, R30, R38,