Karnataka Government Contemplates 10-30% Hike in Property Guidance Value, Raises Concerns for Homebuyers

The Karnataka government is contemplating raising the property guidance value for the real estate sector by approximately 10-30%, according to sources from the Department of Stamps and Registration, as reported by Moneycontrol. The guidance value represents the minimum value at which a property sale can be registered with the state government and is sometimes referred to as the circle rate in certain states.

This potential increase would be the first adjustment to the guidance values in the state since the last hike of 25% in 2018-19. Previously, a 10% rebate was offered until July 2022 due to the impact of the Covid-19 pandemic. A senior official in the stamps and registration department informed Moneycontrol that they are awaiting a directive from the new government cabinet to proceed with the revision, citing the subsiding of the pandemic and the resurgence of the real estate sector across the state as reasons for considering higher guidance values.

The data provided by the department indicates that in the previous fiscal year, it collected revenue of Rs 17,874 crores, surpassing the target of Rs 17,000 crores. In April 2023 alone, the department collected around Rs 1,000 crore. Experts suggest that while this increase will have minimal immediate effects on homebuyers, a significant rise could impact affordability in the next 1-2 years.

The calculation of guidance value involves a formula based on various factors such as location, land size, and the market or capital value of the property. Different areas in Bengaluru, like Indiranagar and Whitefield, have their own specific guidance values, which are currently available on the state’s stamps and registration department website.

Experts believe that the government’s intention to raise the guidance value is highly likely. The Department of Stamps and Registrations has been instructed by the previous state government to reassess the rates due to the lack of revisions over the past five years, citing reasons including the pandemic. Ashish Sharma, City Head of Bengaluru at property consultant ANAROCK, predicts a hike of at least 10%, possibly reaching the maximum cap of 30%.

The immediate impact on property prices in Bengaluru is expected to be minimal, with the effects on affordability becoming more pronounced in the next 1-2 years. One contributing factor is the current scarcity of ready-to-move-in properties in the city, as most upcoming inventories are still under construction or awaiting launch. Additionally, the discrepancy between the guidance value and market value varies across different locations. Prime areas or central business districts experience a 40-50% difference, while the outskirts have a gap of around 30%. For instance, in areas like the outer ring road, Hebbal, or North Bengaluru, the guidance value ranges from Rs 6,000 to Rs 7,500 per square foot, whereas the market value is between Rs 9,000 and Rs 10,000 per square foot. The gap in Whitefield is currently around 30-40%, while in Indiranagar, it reaches 50%.

Experts argue that an increase in the guidance value for central business districts would align property prices with existing market values, resulting in no significant difference for homebuyers in terms of stamp duty and registration costs. However, for properties where the gap between market value and guidance value is already 25-30%, a substantial hike could lead to market value falling below the guidance value, adversely affecting affordability. In such cases, experts warn that a drastic increase in guidance value could cause a slowdown in the real estate sector and impact sales.

The potential hike in guidance value has raised concerns among homebuyers, particularly when combined with the current trend of rising home loan rates, which have crossed 8%. Industry experts suggest that any increase in guidance value should be phased out gradually over the years to minimize the impact on buyers.

Ashish Sharma from ANAROCK highlights that developers in the city have already been compelled to raise prices by 10-15% in recent years due to high raw material costs and soaring land prices. With an additional increase in guidance value, developers are unlikely to further inflate prices before it starts affecting sales.

As the Karnataka government awaits the formation of the new cabinet, the decision to revise the guidance value will have far-reaching implications for the real estate market in Bengaluru. Balancing the need for increased revenue and ensuring affordability for homebuyers will be crucial factors in determining the extent of the hike and its subsequent impact on the sector.

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