Guidance Rates hiked by State Government
The State Government has announced its decision to increase the guidance rate for property. Suresh Hari, analysing the trend predicts that such a method of calculation can lead to an inflationary trend that excludes price correction at any point of time creating an artificial bubble.
An increase in the guidance rate for property, which has been announced by the State Government, is predicted to hurt real estate sentiments. In the last two sets of revisions, property guidance has received a hike of 30-40 per cent but could go as far as 60 per cent, as has been seen in select localities of Bengaluru. In August 2013, guidance rate had already been increased by 15 per cent, which however does not find favour with the present market condition.
Negative effects: Many believe that such increase of the guidance rate is unrealistic. Previously, the CREDAI had been campaigning for the adoption of a more scientific approach to guidance rate. Under normal conditions, it would have been calculated at 70 per cent of the market value which itself is inconsistent given the market conditions. Amenities like those for higher floors etc. are added to the value as additional values.
- If the government does not move in line with the market conditions, it can result in artificial conditions due to rising of stakes for the incremental increase of stamp duty collection.
- Land Prices will be impacted by the artificial inflation created.
- Guidance rates could lead to inflationary pressure making it difficult for builders because in order businesses to grow, normal land prices are an ideal condition.
Present Scenario: The costs of construction in the past few years has witnessed a rise by 25-30 per cent while the market itself has not been going good over 2 years. In order to realise the minimum profit of builders, they have been struggling and this problem continues to grow. Most customers are demanding high value on their investments which also makes it difficult pressurising the builders.
Impact on Buyers: The current rate of stamp duty is more than 5 per cent, the value of the property which should be brought down. The buyer is always burdened with the risk of paying a high stamp duty even if he or she negotiates a lower property rate. The inflationary trends have also driver away many buyers who are not willing to register.
Source: The Hindu
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