Hike in guidance value unsettles realty market in Bengaluru

The real estate sector in the city which was peaking a couple of years ago is now facing a dire situation. Owing to rise in guidance value, the sector is facing a crisis and demand is plunging.

In the past, the revision of guidance value was not undertaken frequently. But in August 2013, guidance value for land was increased by 10 to 30 per cent. Another hike was effected in November 2014.

The department of stamps and registration has decided to increase the guidance value until it becomes on a par with the market value. Because of this, people are not buying property as they would and real estate business is down, city-based real estate researchers have said.

As of April-June 2015, around 84,000 flats have remained unsold. Between June 2012 and 2014-end, nearly 40 per cent of the flats remained unsold.

 Earlier, Mumbai was lagging behind in sales of flats, now, Bengaluru is catching up with Mumbai. Bengaluru was the one city that remained vibrant in real estate sector, while major metros in the country experienced upheaval in the last couple of years. But now Bengaluru too is being affected by the upheavals and by 2016, the situation is expected to worsen, the researchers say.

While the situation may turn grim, in the City, flats in the range of Rs 35 lakh to 80 lakh are doing well in sales, while those over Rs one crore are not selling as much as developers would have liked. But, flats between Rs 75 lakh and Rs one crore are being built and are doing well in sales.

The western part of Bengaluru however is suffering most with no real estate activity - especially close to areas like Mysuru Road and Tumakuru Road.

On the other hand, Sarjapur Road, Whitefield, Devanahalli and new Airport Road, Varthur are areas that have been seeing reasonable demand for flats. This is perhaps because the IT corridor stretches from Sarjapur Road to Hebbal via Whitefield.

 It is believed that the implementation of the goods and services tax act (GST) would also hit the real estate sector. If implemented, taxes would have to be imposed on all material that goes into the construction industry, which will make goods and services costlier.

As of now, the State government imposes 4.94 per cent service charge and 10.15 per cent VAT on the construction sector.

There is also a cess on materials going into the construction sector. Now there’s a proposal to bring everything under one head to tax purchasers of apartments to the extent of a uniform 22 per cent.  

Besides this, the Revenue department is planning to impose revenue tax even on flats that are not sold, not only on flats that are sold. There is also a proposal to tax flats that are considered as revenue earning. All this is taking a toll on the real estate sector, researchers say.

The secretary of Bengaluru Credai, Suresh Hari, said that the government’s decisions were not in favour of real estate industry. “Time and again, the guidance value is being changed. This affects the stability of the real estate market. We have written to the relevant department, but are not getting any response,” Hari said.