Bangalore’s new guidance value: Builders crib, buyers confused

Sale in properties across Bangalore has dipped in last one month. File Pic.

Before the new guidance value was announced, brokers across Bangalore seemed to be in hurry to close various property deals. June 2013 saw highest real estate transactions, says a recent report by the real estate services firm, Jones Lang LaSalle India. However, after the new guidance values came into effect, the realty market has slowed down, in an effort to achieve an equilibrium between market value and guidance value.

Builders and realtors are not at all happy with the new guidance value system. They point that the market is going through a turmoil and sales have reduced. There is a lot of confusion prevailing among builders, buyers and realtors.

N A Afzal, the Chairman- Legal Affairs of Bangalore Realtors Association – India (BRA-I), says: “We have observed the notification and objected to it as well. The government is not very friendly to the builders community, including the recent (central) bill where the builders have been told to charge properties based on the carpet area and not as per the super-built up area. The new concept of charging for the amenities is an addition to this.”

Afzal points that in the last two years, the rates of property in the open market had not increased more than 25% in the CBD areas. Whatever projects which people are moving into or being advertised were started 3-4 years ago. They are just being completed now. He adds that the real estate market is not good, with only 35-40% of the projects being sold.

What’s the demand for real estate in the city?

Afzal opines that the costliest areas would be Whitefield, Sarjapura Road, Airport and surrounding areas where the cost has escalated from 30-100%. There are no more cheap areas left in Bangalore, but tentatively lesser would be outskirts of Devanahalli, Marathahalli, TG Halli, outskirts of Sarjapura road and surrounding areas where water and facility is not good.

Prakash adds that in areas like Nagarbhavi, Chandra Layout and some parts of Vijayanagar, there is demand for flats. But mostly old time Bangaloreans and locals still prefer independent homes. A large demand for flats comes from non-locals, especially north Indians who are opting for ones in Yelahanka, Airport Road, Sarjapura Road, Hosur Road and Electronic City side.

Krishnakumar adds that Jayanagar is an expensive area, where sites are still available. However in case of apartments, Kanakapura Road and Bannerghatta Road are in demand. While for gated communities and villas, it is north Bangalore which is making brisk business.

Demand for what kind of homes?

Around 60% of the upcoming residential projects belong to mega builders like Shobha, Mantri and so on. But a good demand for apartments in Bangalore still ranges from Rs 40-75 lakh. Low cost flats costing Rs 20-25 lakh are also making fast sales in Electronic City, Whitefield and Sarjapura Road.

Krishna Kumar, proprietor of KK Retails, a real estate agency in Jayanagar 7th Block, adds that earlier the property costed Rs 3,800 psqft, now it costs Rs 7,000 psqft for residential and Rs 11,000 for commercial. In case of BSK 6th stage, a 30×40 site measuring 1200 sqft which cost Rs 14 lakh now costs Rs 28 lakh and Rs 1200 psqft has now escalated to Rs 2600 psqft. Also the  concept of buying for investment purposes will also take a beating.

Prakash, proprietor of Prakash Real Estates, located in Vijayanagar, says that the government has announced a lesser guidance value. While this will affect the builders, it will help the buyers. But no matter what the rate is, real estate agents will not get affected as they work on commission.

He also points that the leasing of properties has reduced over the years. Now with the new guidance value, it will reduce even more due to rise in property cost.

S Ganapathi, employee at Karthik Real Estate Agency in Whitefield, says that market value here is Rs 9,000 psqft and the guidance value quotes Rs 3,500- 5,500 psqft. Earlier the guidance value ranged around Rs 3,500 psqft.

Afzal says that buyers usually register the property after the completion of the project, just when they are ready to be occupied. So even if the agreement is old the stamp duty will be increased as it will be based on the new guidance value. Most builders could even demand the difference amount from the buyer. All these problems will crop up within a month, he warns.

How is guidance value calculated?

Speaking to Citizen Matters, Adhoni Syed Saleem, Inspector General of Registration and Commissioner of Stamps and Chief Controlling Revenue Authority in Karnataka, says that they have covered around 10,000 areas in Bangalore. The guidance values have been issued after a thorough study by the department and the sub-registrars. They have visited various sites and spoken to citizens and realtors.

After reviewing the present market rates and the old values, the new ones have been derived. The rates have been hiked, as it has been over two years since the guidance values were revised.

“The guidance value has increased from 20-60% in urban areas and only in a few cases like in outskirts of Bangalore they have doubled (100% increase). In the central business district (CBD areas) there has been a 50% increase,” he says.

Saleem says that now some of the costliest areas in the City would be Commercial Street, Sankey Road and roads near Raj Bhavan. The cheapest will be outskirts like north and west Bangalore.

Saleem says there are many indicators which increase the value of a property, such as the facilities provided, proximity to the airport, bus stand, railway station, availability of space, ongoing and upcoming construction activities, infrastructure projects around it like Metro, population density and so on.

Citing an example, Saleem explains that an area like Chickpet is nearest to city railway station and bus stand, it is also in the heart of the City, but there is no area left for development and expansion. So the guidance value cannot be escalated to a large extent. However incase of Vittal Mallya Road, it is in demand for residential and commercial purposes, it is located in the heart of the city and there is scope for development. Thus the cost escalates. Same is the case with developing areas like Whitefield and surrounding areas.

Explaining the difference between guidance value and market value, Saleem says, the former is always lesser than the latter. The guidance value is like a cap fixed by the government and the value of a property cannot be estimated lower than this. It is like a guide. The market values are always higher than this. The open market value depends upon the guidance value, but it does not in any way affect or increase the open market value.

The guidance value will give a good push for a better real estate culture and better implementation of laws, say Saleem. The government is expecting an earning of Rs 840 crore this fiscal from the stamp duty itself.

Some effects of the new guidance value

Pay extra for car parking: People will have to pay an additional amount for the car parking spaces. Apartments with car parking do cost more so now the value is also more.

No effect on ongoing constructions: The guidance value does not affect ongoing constructions. The rate has been agreed upon by the buyer and the seller so the new notification will not change it. However for those booking after the notification will have to pay more.

Rent can’t be hiked suddenly: With the increase in guidance value, the owner cannot fleece the tenant to pay more rent suddenly and violate the contract agreement. The owner can only increase the rate based on the contract- annually or however the clause says and not because of the high guidance value.

Govt projects won’t be affected: Guidance value will not affect the cost of governmental infrastructure projects as they come under the category of necessity. When government or BMRCL acquire the land, they will pay a higher price as they do not want people approaching the court and stalling the project. The rates are fixed by the government’s land acquisition departments and the guidance value does not affect their decision.

Old agreement, new stamp duty: Regarding those who have already purchased a property, but are yet to pay a stamp duty, Saleem says: “if the agreement was made a year or two ago, but the property was not registered, then they will have to pay a higher duty. As per the act, the guidance value of the property which exists at the time of registration matters while paying the stamp duty. People will have to pay the stamp duty based on guidance value existing on that date of signing the agreement.”

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About Bosky Khanna 0 Articles
Bosky Khanna is Staff Journalist, Citizen Matters.

4 Comments

  1. I would like to know whether the registration process is happening or not…else I need to pay extra money for registration.

  2. The revised guidance value coupled with 1% tds will definitely have an adverse impact on the market along with the present economic crisis. Though, the guidance value has been increased, but it is far too low, than the actual market price, except the apartments. There is abnormal tax evasion noticed in all these transaction and the Govt must plug it.
    Ecopackindia team

  3. “He adds that the real estate market is not good, with only 35-40% of the projects being sold.”. Well when you price things like in Cuckooland only Cuckoos will buy your property and there aren’t that many.

    How many apartments are empty in Bangalore? There was a Hindu article which estimated it to be 3.6 lakhs in 2012.(http://www.thehindu.com/todays-paper/tp-national/tp-karnataka/every-10th-house-is-vacant/article3736315.ece) It is ridiculous that 10% of the apartments empty waiting for value to go up. The culture of real-estate for investment purposes should stop. Housing is a basic necessity and to make it into a commodity is ridiculous. Any semblance of sense has gone out of the real-estate market. The fact that it’s a market says everything.

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