The guidance value thorn

The guidance value thorn

Unscientific revision of guidance values coupled with complex registration procedures renders home buy an arduous task

Guidance value for sites, houses and apartments is a crucial factor in determining property prices and consumer sentiment - the value will decide whether residents of Bangalore are ready to invest in a site, home or apartment.

It will determine how much stamp duty, registration fee and khata fee residents have to pay as part of the overall property price. The guidance value has direct relation with household budgets which are enhanced or trimmed in accordance with the final value.

Bangalore last year saw a market-determined guidance value set by the State government. The market factor was taken into account as guidance value without market aspect was too low and the government was getting poor revenue.

The government also felt its guidance value did not reflect the actual value of properties across Bangalore. In this context, a new market-determined guidance value was conceived and announced last year. On an average this new assessment of value was 30 per cent short of market value, but much better than what it was previously -  almost 50 to 60 per cent short of the market value.

In line with the new thinking, the State government last year enhanced guidance values by 30 to 50 per cent in most parts of Bangalore and by almost 100 per cent in developed areas.

The value in some posh areas like Sadashivnagar was fixed at around Rs 10,000-13,000 per sq ft and in some other areas like Vittal Mallya Road at around 20,000 per sq ft. UB Towers on Vittal Mallya Road is the most expensive property in Bangalore, next comes the Raj Bhavan Road, Commercial Street and Sankey Road.

While the value of the property at UB Towers is around Rs 20,000 per sq ft, properties on the outskirts of the city have been assessed at Rs 250 per sqft. This shows the vast difference in the property prices between city centre and periphery. The city centre rates will continue till the time the State government revises them for 2014-2015.

The government has indicated it will and this will impact residents first. Property prices are now expected to go up by 15 to 20 per cent, which means buyers have to pay more for the same floor area. This revision is yearly.

A few Bangaloreans the paper spoke to pointed out that guidance value impacts different sections differently. Says Ramesh I, a civil engineer from Indiranagar: “The high prices of sites or flats will benefit builders and real estate brokers because they get more money for the same project. It will also benefit sellers of property who get a higher return for their property bought at a lower rate. It is the buyers who suffer - we have to pay more for an apartment than what we had actually planned for.”

Mahantesh V from Nagarabhavi says when guidance value goes up, sellers gain and buyers lose. “I know a neighbour who paid Rs 30 lakh for an apartment, which has now gone upto Rs 38-Rs 40 lakh.

The neighbour feels good because he’s making a profit. But the buyer wonders why he should pay Rs 10 lakh more for a flat he knows was purchased at Rs 30 lakh. So the revised guidance value helps builders and sellers, but hits buyers.”

The cost per sq ft in areas like Jayanagar, Indiranagar and Koramangala range between Rs 9,000 per sqft and Rs 12,000 per sqft. Sites cost roughly around Rs 50-60 lakh to a crore, while flats range from Rs 40 lakh to Rs 80 lakh and even a crore.

Inflationary trend

Suresh Hari, developer, and secretary of Confederation of Real Estate Developers of India (Credai) Bangalore, told Deccan Herald that higher guidance value could sometimes be inflationary and cause artificial hikes in prices.     

“The guidance value fixed by the government is not scientific. There cannot be a common guidance value for a street whereby the highest and lowest values are multiplied and averaged out to arrive at the value. A big property with large floor area and amenities has a very high value, while a small property with smaller floor area and fewer amenities should have a fairly lower guidance value. So two very different properties on the same street paying a guidance value based on the averaging of the highest and lowest value on the street would be inaccurate. 

“The higher value then becomes inflationary and triggers artificial hikes. It pushes up prices all around and the locality would turn expensive. A buyer will not then be buying the property in that locality at a fair price. Consequently, developers lose customers and customers themselves get a bad deal.”

Averaging out two very different guidance values to arrive at a common value is not right, says Hari.

“I would suggest that a third party agency be set up to evaluate properties in the city and come to a scientific and rational guidance value, which can be revised once in six months or a year. Builders should not interfere with their work nor should the government. Evaluation by a neutral party is vital.” The Credai official also suggests that rules be made simple and understandable. 

“We could take cue from the American residential model, where authorities put all information and data on the web. Every aspect of sale and purchase, guidance value, locality, authenticity of documents is published. Transparency will clear confusion around rules. Citizens suffer also because of highly complex and tight regulations and may even end up paying more than what actually has to be paid. 

“The guidance value here is calculated by district registrars and a team of sub-registrars who may tend to pitch the guidance value higher than what it is. This decision could impact calculations and lead to artificial hikes.”

What is the official response to this suggestion? Stamp and Registration department officials say that guidance value is fixed street by street now and soon will be fixed property by property.

“We have plans to evaluate each property on its own merits, which means each property may have different guidance value. This is a mammoth task. We need huge manpower to execute this. An option is to take the assistance of government employees. The guidance value we fix will be close to the market rate, so it would not be easy any longer to just quote any value as guidance value. There will be objectivity in the work done.”

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