Monday, 17 October 2011

Chennai Real Estate Guideline Value - Steep Increase Planned


The Guideline values in Chennai is soon going to soar to great heights, increasing by two to four times at many parts of the city and by about five to six times in the suburbs.

You can visit the following links to read the details on the story.

The Hindu: http://www.thehindu.com/news/cities/Chennai/article2533674.ece
Times Of India - http://articles.timesofindia.indiatimes.com/2011-10-14/chennai/30278710_1_market-value-usman-road-realty-deals

While the Real Estate Guideline value has not been revised since 2007, there seems to be a sudden increase at this point. However, many high vale players are welcoming the move as it puts a check on the black money that the seller makes. But let's take a moment and see how much this impacts the buyers.


Advantages

1. Good Resale on Acquisition: The total Market value will be roughly equivalent to the cost calculated based on the Guideline value. Since the registration happens at the Guideline value, buyers can be assured of a good resale price over and above their spending even in case of land acquisition by government or other power players. This is majorly not the case today, as the buyer spend around Rs.1000 to Rs.2000 per sq.ft as Market Value on Chennai suburbs, where the guideline value is Rs.300 to Rs.500 only. Since the Guideline value is what is mentioned on the book, they always face a risk of acquisition at lower cost.

2. Higher Loan Amount: Buyers can now get a greater eligibility on the Loan amount. Since loan amount is always calculated based on Guideline value, the general eligibility is around 80% of the book value. So, for a 1200 sq.ft land if the guideline value is Rs.500, the loan eligibility will be around  Rs.4,80,000. If the Market Price is say Rs.1000/sq.ft the overall Market Value of the property is Rs.12,00,000. The buyer always has to spend the remaining money out of his pocket and that mostly gets accounted as Black Money to the seller (excepting that 20% bank margin which gets accounted). Now, by getting the Guideline value same as the Market Value, it's only the 20% margin on the loan amount the buyer need to spend in cash. The rest is covered by the bank loan.



Dis-Advantages


1. Higher Registration Cost: The registration cost is going to be very very higher. Since the registration and stamp duty is going to be 9% of the property value (based on guideline value), they are going to increase in similar proportions as the guideline value - 3 to 6 times. Taking the same example of Rs.1200 sq.ft plot and considering Rs.500 as the previous guideline value and Rs.1000 as the new guideline value, the approx registration cost is going to vary from Rs.54,000 to Rs.1,08,000 after the proposed change.


Our examples have illustrated an increase of 2 folds. If it's going to happen 3 to 6 folds imagine the difference it's going to make for the buyer, the seller, the bank and the Government.

Nevertheless, it's a good approach to curb the black money and put a noose around the neck of all those real estate businessmen who are making a lot of profit, but I fear there's going to be lot of adverse impacts on the buyers side and as a result the demand is going to come down very soon. This is a quote from "The Hindu"
The value of properties in the suburbs particularly along the major roads has been substantially increased. For instance, the existing guideline value in Tiruporur along the Rajiv Gandhi Salai is about Rs.400 per square foot, and it is now proposed to be revised to Rs.3,000 per square foot. Similarly the guideline value in Guduvancheri is proposed to be revised from Rs.550 to Rs.4,000 per square foot. 

I would still say this is a disproportionate increase. Property costs on these areas increased around 7 times since 2007? I fear not! Let's see how it goes.

59 comments:

  1. I see it as good move by the government to curb black money.

    As mentioned by the buyer has to adjust for the loss occur in registration considering the benefits they get by resale and loan.

    I'm happy by seeing the new guideline values.

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