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

Abstract

Real-estate values are often under-reported to evade taxes and hide illicit wealth. We develop a new method to estimate under-reporting, and employ it on large, granular administrative data from the Mumbai real-estate market. The approach compares bunching of reported values around government-assessed guidance values with the distribution of a third-party measure of market values. We estimate that 11 percent of Mumbai real-estate value is under-reported between 2013 and 2022. Bunching declines post-demonetization, but there is no discernible change in the overall under-reporting rate. Properties with mortgages from banks with high non-performing assets and from public-sector banks exhibit greater under-reporting.

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

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