Guidance Value and property prices are correlated

One of the mundane facts, which is a point to ponder for a number of investors, is the reason for the sudden fluctuations in the real estate prices. The sudden ups and downs in the real estate prices can be attributed to the “guidance value”, which is anchored by the Stamps and Registration Department, for all commercial and residential units in a city.

Guidance Value: An in-depth overview

The state government of any city is on the hook to define the guidance rate for any area. For starters, guidance value can simply be defined as, the price of the built up area of residential plots, land and commercial properties for any specific area.

Whenever there is an acute necessity for price revision, the government turns the table and updates the guidance value from time to time. A crucial point to take into consideration is that the registration cost and stamp duty, chip in by the real estate buyer, should be ideally, more than the guidance value of the property.

Guidance Value and Built up Area- The relation

Guidance value is not linked with the carpet area, instead with the Built up area of the property. Hence, if the guidance value for a property is rated at 2000 per sq ft and the developer is selling it at the same price, it is probably an act of hoax, since the developer only spills the beans related to super built up area rate and not the built up area price. The built up area rate is generally higher, hence the rate charged by the builder is always few notches up, if calculated.

Few crucial terms to take into consideration:

• Built up area- Carpet area+doors and walls area
• Carpet area- Net usable area of the property
• Super built up area- common facilities + built-up area

How real estate is influenced by guidance value rates?

Guidance value can be set at the floor price, which is fixed by the state government. Taking into account the market condition, quality and existing demand, builders can charge premium on that fair value. Hence, the prices prevailing in the market will be set at a higher altitude than the benchmark set for guidance value. However, if the set benchmark is more and increases with the passing years, the market price cited by the developers will also witness an escalating path.

For instance, the new guidance value for Karnataka will be implemented for 25 districts from August 12. In order to avoid the impact of the increased rates, builders in Bangalore have contributed towards property registrations worth Rs 1200 crore in the last few months. The revised guidance value for Bangalore will keep the registration fee of 1% and stamp duty of 5% of the total property registration value unchanged.

Guidance Value-where to find them?

It is not possible to pull the wire for the actual rate which is charged by the builder, however, it is always a good practise to keep a track of the changing guidance value of an area. The guidance value for an area can be located:

• on the Registration and Stamp Duty Department website
• at the office of Sub-Registrar
• Using RTI application
• Via newspapers

Rentals do not require Guidance Value

For buying of properties, guidance value is charged, however, it is not applicable in case of rentals. However, if the government proposes guidance value for rentals, it would generate a possible idea which area is in demand and what is the premium range homeowners are asking over the defined rental rates of the government.