Karnataka to revise property guidance value, a hike between 10-30% likely: Sources

"Once the new government cabinet is formed, we will ask for a directive and notify accordingly. Now Covid has phased out, and real estate is picking up across the state. Thus we are looking forward to increasing the guidance values," a senior official in the stamps and registration department told Moneycontrol.

According to the data provided by the department, it collected Rs 17,874 crores against the target of Rs 17,000 crores in the last financial year in revenue from stamps and registration.

In April 2023, the department collected about Rs 1,000 crore.

Experts say though this will have a minimal immediate effect on homebuyers, a drastic increase may pinch affordability 1-2 years from now.

How is the guidance value calculated?

Umakanth Y, director of Advisory Services at Colliers India, explained that the formula used by the government to calculate the fair value of land in Karnataka is based on a combination of factors, including location, size of the land parcel and the market value or the capital value of the property.

For example in Bengaluru, different areas like Indiranagar and Whitefield will have their own guidance, a list of which is currently available on the state's stamps and registration department website.

How likely is the government to hike the guidance value?

Umakanth said the former state government has already notified the Department of Stamps and Registrations to reassess the rates, stating that there has not been a revision for close to five years, citing various reasons, including the pandemic.

Ashish Sharma, City Head of Bengaluru at property consultant ANAROCK said: “For the central business districts, today the prices are very high. And even in the peripheral real estate pockets, the prices have gone up in the last one-and-a-half years. The gap between the market value of a property to the guidance value has gone up to 40-50 percent today, up from 25-30 percent a few years back,".

The hike of 10 percent is very likely, if not the maximum cap of 30 percent, he said.

Impact on property prices in Bengaluru

Experts say an immediate hike in guidance value will start hurting affordability about 1-2 years down the line.

"One reason is that currently, ready-to-move-in inventories are not available in the city's real estate sector. Most of the upcoming inventories are under construction or about to be launched," Sharma explained.

Additionally, the micro demographics of the difference in the guidance value and market value should also be considered.

In most prime locations, or CBD areas, the difference is about 40-50 percent while in the outskirts, it's about 30 percent, local brokers add.

For example, in outer ring road, Hebbal or North Bengaluru the guidance value is about Rs 6,000 - Rs 7,500 per square foot while the market value is Rs 9,000 - Rs 10,000 per square foot.

In Whitefield, the gap is about 30-40 percent today. In Indiranagar, the difference is about 50 percent.

"Thus an increase in guidance value for the CBD areas will bring the property prices at par with the market value that is already present today, making no difference to the homebuyers in their stamp duty and registration costs," Kiran Kumar from Hanu Reddy Realty said.

Sharma said that in general for a Rs 1 crore property, a 10 percent increase in guidance value will add Rs 75,000-Rs 1 lakh in stamps and registration, while for about a 30 percent hike, it will add Rs 2.5 lakh.

However, he added that, in several parts of the city where the gap is in the range of 25-30 percent, a drastic hike will lead to the market value falling below the guidance value, thus pinching affordability.

"If the hike is drastic, more than 70 percent areas of Bengaluru's real estate sector will see the property market values fall, leading to a slowdown in the sector and staggering sales," Sharma said.

Experts say that especially at a time when home loan rates have crossed 8 percent, the increase in guidance value should be phased out over the years.

"Already, high raw material costs and soaring land costs have pushed the developers in the city to raise prices across the board by 10-15 percent over the last few years. With an increase in guidance value, it is unlikely they will increase costs before it starts affecting the sales," Sharma added.