With the Karnataka state government proposing to increase the guidance value of properties by 14 percent, real estate experts say affordability in the budget home segment is set to take a hit in Bengaluru, though overall demand for housing looks stable.
On July 7, while presenting the state’s budget for 2023–24, Chief Minister Siddaramaiah revised the guidance values of real estate properties in the state.
Guidance value is the minimum value at which a property can be registered in a place.
Rationalised guidance
In most prime locations, or CBD areas, the difference between the guidance value and actual property prices is about 40-50 percent, while in the outskirts it's about 30 percent, local brokers say.
For example, in Outer Ring Road, Hebbal, or north Bengaluru, the guidance value is about Rs 6,000-Rs 7,500 per square foot (psf) while the market value is Rs 9,000-Rs 10,000 psf. In Whitefield, the gap is about 30-40 percent. In Indiranagar, the difference is about 50 percent.
M Murali, CMD, Shriram Properties, said that although this may increase the cost for property buyers, it needs to be seen how this actually impacts property transactions.
Real estate brokers in the city say property values are already sky-high. "Property prices have increased 20-30 percent in prime areas and growing suburbs. Thus, in most places the guidance value is already less than 40 percent of the market value," Sunil Singh, Director, RealtyCorps, said.
The state government last increased the guidance value four years back, but had reduced the same during COVID-19. "Prices have gone up in certain micro markets post COVID-19, and I feel that an increase will rationalise the guidance value in such places," B S Nesara, Chairman of Bengaluru-based development firm Concorde, added.
Dent in affordability
The increased guidance value is expected to dent the affordability in some areas. "This will mostly affect those who are looking to buy mid- and lower-end budget homes. A 14 percent hike is likely to increase their costs by Rs 50,000 to Rs 1 lakh," Singh added. Such buyers are already feeling the pressure of price rise due to inflation.
Areas such as Kanakapura Road, Devanahalli, and outskirts of the eastern IT corridor's Sarjpura Road are expected to bear the brunt of this latest move.
It can also impact the cost of property development. Developers typically factor in the land cost, including the guidance value, when determining the project's feasibility and pricing. If the guidance value increases, developers may need to pay higher land costs, which will affect the overall project cost, Ashish Sharma, City Head - Bengaluru, ANAROCK Group said.
However, Navin Dhanuka, MD and CEO, ArisUnitern RE Solutions, a real estate firm, feels that the sector’s growth momentum will continue in the coming years.
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