RBI rules prohibit bank loans to fund purchases of land, a regulation designed to curb speculation and reduce balance sheet risk for banks.
To fill that void, wealthy individuals, including politicians, are widely believed to invest "black money" in real estate.
Some of that money can later be poured into election campaign donations from developers, say private equity investors, real estate consultants and sector analysts.
Those same developers might be awarded with plots of land at attractive prices or assisted in getting project approvals.
Black money comes in handy for bribing corrupt officials.
"There is a cost of pushing the file. But what is the alternative?" said Lalit Kumar Jain, chairman of the Confederation of Real Estate Developers in India (CREDAI).
For a typical residential project in Mumbai, developers need about 55 approvals from more than a dozen departments. Delays in consents add 40 percent to a project's cost, said Jain.