The latest proposal by the Karnataka government to increase guidance value of properties in Bengaluru has come as a dampener on the real estate industry, which is showing signs of recovery post-demonetisation and the introduction of RERA, the real estate industry opined.
The cost of purchasing a residential property is set to go up by 2-3% with the government proposing to increase the guidance value of properties in Bengaluru. This means a house buyer will have to shell out an additional Rs 70,000 to Rs 1 lakh more for a property valued at Rs 35 lakh.
“The real estate market is slowly improving post-Demonetisation and RERA. The new move by the state government will hit end-user as registration value will go up. The timing of the hike in guidance value is not appropriate,” Ramji Subramanian, Managing Director, Sowparnika Projects & Infrastructure said.
With a higher guidance value, registration taxes and other associated levies would rise. The capital gains tax too will be higher. Property developers are already witnessing a gradually increasing cost of funding their projects. A mistimed decision like this can well slow down the momentum in the real estate sector, Gururaj Bhat, Group CFO, Karle Group of Companies said.
“With the monetary policy tilted towards a tighter liquidity, lending rates are comparatively higher, thereby increasing the cost of loan servicing and more importantly driving potential buyers towards a wait and watch mode,” he said.
The upward revision of 5-20% in guidance value is not well-timed as the residential sector in Bengaluru had only started witnessing sales revival in the first half of 2018 after a period of low sales velocity owing to multiple policy reforms, according to Shantanu Mazumder, Senior Branch Director, Knight Frank India, a global property consultant.
“After six consecutive quarters of sales de-growth and decline in launches on a year-on-year basis, this move will only add additional stamp duty charges for buyers in a recovering market and make properties expensive. Due to GST and RERA implementation, property prices in Bengaluru had stagnated over the past one year and this additional burden will impact buyer sentiment negatively,’’ Mazumder said.
Bengaluru city has already taken a lot of beating over the past 18 months and specially in the last one year there has been a price correction by 7-10% and its only in the last 6 months or so sales had started to pick up marginally. But again it is going to put a lot of pressure on the market which is still far from its peak days, he added.
Ashish R Puravankara, Managing Director, Puravankara Ltd said the upward revision seems unreasonable especially at a time when the industry is stressed. The newly introduced income tax on the notional basis on unsold inventory, the current debt ratios of the industry, also the discounts on published sale prices are already a burden on the industry and a revision in the guidelines will add significantly to this situation.
“Having said this, the revision is still in the proposal stage and the authorities have asked for objections to be filed which we collectively as an industry and also in individual capacities will make a representation, and hopefully come to a conclusion which will bode well for all stakeholders involved,” Puravankara said.
The government's proposal is a counter productive move that will impact sentiments negatively as the residential market had just begun to pick up momentum in Bengaluru ahead of the festive season. Many looking to buy in the affordable and mid-housing segment might postpone their purchase decision owing to higher taxes. The subsequent increase in revenues must be utilised by the state to improve infrastructure which is essential to meet Bengaluru's ambitious growth requirements, a spokesperson from House of Hiranandani said.
During the previous guideline value increase, the value came up to the market value and there’s hardly any difference between the two values, Viswa Prathap Desu, Sr. Vice President Sales and Marketing, Brigade Enterprises Ltd said.
"While this will help the government increase their revenues, this proposal to increase the GV may affect the sentiment. We hope the government reconsiders this decision to increase the Guidleine values," he added.
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