The government has made an indisputable faux pas with its decision to hike guidance value. It should not have been done at all.
While the authorities are right in saying it will crack down on black money, why is the guidance value being used as a tool to increase stamp duty? All the government is thinking of is increasing its own revenue, but it has chosen a poor way of doing it.
What is the value of the services rendered during registration? It is mere record keeping work. The government doesn't authenticate or judge quality or verify documents.
About six per cent of the total value of the property is collected by the government, merely for registering the details! It should instead come up with another model to fix stamp duty and registration charges.
The bottomline here is that the customer suffers. Real estate is taxed heavily and the buyer ends up paying about 40 per cent of the property value in taxes! You pay a higher tax if you pick an apartment on a higher floor, because this is more expensive to purchase.
Why does a builder hike the rate by the floor? Simply because construction costs go up with the height of the building. The builder isn't necessarily collecting a higher profit by charging more.
Amenities like a clubhouse, pool and gym are also supposed to be 'adding value'. Why is that a mark for authentication? Does the government then declare these buildings five-star accommodations?
They also have a new system of identifying projects. For instance, if I am developing a property that I launch at 'x' price, it is listed before it is complete.
So the customer is paying x times three as stamp duty. We have been asking the government not to list projects that are incomplete, but have had no success. What we really need is an external agency to determine the guidance value of a property.
Guidance value, is in essence, a tool of information for the common man, to help him understand the price prevailing in a certain area.
It's also a tool for the revenue department, through which it can keep a watch on registration and black money. But why levy stamp duty? Yes, we want the process to be clean and transparent, and welcome any initiative to cut down on black money, but this is hardly the way to go about it.
The value also goes up with houses that face parks, lakes, the road or that are near a temple. The guidance value is a good indicator of these fluctuations and is normally fixed at about 70 per cent of the market rate.
As far as a builder is concerned, land is the basic raw material, so hiking the rates is disastrous for real estate. To add to this, construction costs are also constantly going up. So where does that leave the builders?
The government claims that construction is a priority sector, but it certainly isn't treated that way. There is no way they can achieve housing for all by 2020 at this rate. In fact, it won't be done even in 2080.
Hiking guidance value will most likely cause a slump. The market is slowly picking up but that will slow down, partly because of the rise in construction costs.
The government has sent a wrong signal to the market, creating an artificial bubble that will lead to inflationary pressure. The builders will bounce back, but can we say the same for the common man?
—The writer is secretary, CREDAI
