Guidance Value: The realty bites!

Property prices in Bengaluru could shoot up with the state government all set to notify a revision in guidance value from April 1. Both the builder community, which is going through rough times, and ordinary buyers feel the move could hit them hard and are calling for its withdrawal.

Lying low for months in the face of public outcry and the then looming BBMP elections, the Siddaramaiah government has now revived its attempts to revise property guidance value in the state. The Central Valuation Committee of Karnataka is determined to raise the guidance value by 10 to 30 per cent for properties across the state. The rise could be 10 per cent for agricultural properties, and 20 and 30 per cent respectively for the residential and commercial.

But the building industry is far from happy, arguing any increase in guidance value could hit the flow of Foreign Direct Investment (FDI) into the state and negatively impact its economy as a whole. Noting that the property market is in a slump and the real estate industry has not seen a boom across the country over the last couple of years, former president of the FKCCI, Sreenivasa Murthy says the state government should ideally be helping the realty sector, not adding to its problems.

“The guidance value should be increased once in three to five years depending on the market trend. The present revision is uncalled for when the last took place only in 2014. This is just an easy way of mopping up more revenue,” he deplores.

“Despite builders offering attractive EMIs and buying options, lakhs of apartments are lying vacant today as the property prices are already very high. In fact, the government should have considered decreasing the guidance value to help the situation. Since the proposal focuses on land and apartment complexes, its the middle class , the prime buyers of both these properties, who will be hit. If they shy away from buying, the builders will be directly affected and this will in turn deeply impact the realty sector,” he warns.

Also, the uniform hike across the city is not a well thought out move, according to him. For instance, property buyers in Lavelle Road and Shivajinagar will be paying the same guidance value, although the land rates in Shivajinagar, just 2 kms from Lavelle Road, are not very high. “The guidance value will differ based only on the zone of the properties. How can the government measure land value using the same yardstick? This is not a wise move,” he argues, adding that he intends to lead a delegation to meet Revenue Minister, Srinivas Prasad and convince the government to withdraw the proposal.

What is guidance value?
The guidance value is a reference value reflecting the market value of a property at a given time. Any increase or decrease depends on the prevailing trend in property prices. A buyer will have to pay more stamp duty charges which will altogether increase the final price of a property. 

‘Govt should boost demand for affordable housing, not burden common man’
Not just industry, ordinary people too are unhappy with the government’s move to up the guidance value of properties. Their hopes of owning their own home had risen after the Union government announced a '50,000 waiver for first — time home buyers and the state government promised an investor-friendly environment in Karnataka, but the move to up the guidance value has put them back in the dumps. “When the government should be boosting demand for affordable housing, it is leaving the common man in the lurch,” says one industry expert.

Citizens’ Action Forum member, D.S Rajashekar complains the government is taxing the common man again to merely earn more revenue. “The government has decided to burden property buyers, who are major contributors to the state’s exchequer, because it can’t find other means of raising resources. It may have assumed that commercial activity is high in some of the residential areas like Indiranagar and Koramangala, but it must understand that these localities do not have the necessary infrastructure to sustain it. Without good infrastructure, this proposal is unjustified,” he contends, adding,  “The middle class will be directly impacted as BDA sites are not being distributed properly and the fate of new layouts like Kempegowda is unclear. The state government should reflect on its own shortcomings before burdening the common man.”

What stakeholders have to say...
Tallam Dwarkanath, chairman, FKCCI
The real estate sector is not doing well in the country and the proposal to increase guidance value is only likely to kill the goose laying the golden eggs. The government may benefit from the stamp paper duty after an increase in guidance value, but the current market  does not support a revision. Builders will not be able to sell properties at such high rates. The government must not burden property owners.

Om Ahuja, CEO (Residential Projects), Brigade Group
The move challenges the common man, who aspires to buy a house and the working class, who  are the primary buyers. Considering the inflation of the last couple of years, can salaried buyers afford the increase in guidance value? The proposal is not buyer-friendly and will only be taxing on the common man. It is not a positive move especially when the Union government is helping first-time home buyers with a  waiver of '50,000. 

Farook Mehmood, CMD, Silverline Realty
The state government should reconsider its proposal to revise guidance value as this is not the right time for it in terms of prices and circumstances. The realty sector is waiting for the right market and it’s not a positive market for high prices right now. With the Union Cabinet passing the Real Estate Bill, the sector has been given more teeth. The Bill is good for both builders and buyers. But if the state government revises the guidance value now, it will kill the goose laying the golden eggs. 

R.Nagaraj, former CREDAI president
Firstly, the market conditions are not conducive to increasing the guidance value. Also, there are many loopholes in this proposal which we want the state government to address because at the end of the day, it is the consumer who will be worst hit by the revision. A buyer will have to pay VAT, service tax and guidance value, which will together amount to nearly 25 per cent of the total property cost. If a buyer has paid less for a property by making an early booking and if land value increases by the time project is completed, he will not benefit much by coming in early. We at CREDAI have urged the state government to address these issues.