Understanding the guidance value of a property

You might have heard the term guidance value while buying or registering an apartment or land in Bangalore. This term is the key to deciding the valuation of the property in the given region, city, and state. The guidance value is set by the local state government and is revised from time to time according to the real estate demand in the said region. 

The guidance value determines the selling price of a property in a locality. In this article, we’ll discuss what guidance value means from the buyer’s and seller’s perspectives.

What is guidance value?

The guidance value of a property is the minimum selling price fixed by the local state government which depends upon factors such as locality, structure, utilities, etc. 

Guidance value is fixed by state governments by the department of revenue and stamps. Property transactions are a major source of income for the state’s treasury. To prevent a leak of income, no one is allowed o sell a property below the guidance value so that the revenue from stamp duty and registration charges is not negatively impacted. Stamp duty, property taxes, and registration charges are directly linked to the guidance value. 

Why guidance value is important in Property transactions?

• If a person buys a property, it must be registered at market value, even if brought at a price lower than the guidance value. The property taxes must be paid in accordance with the market value of the property. 
• If a person buys a property for a higher price higher the guidance value, they can register it at the actual value of the property. They can pay taxes at the property purchase price.
• Guidance value is applicable to all types of tangible property like residential and commercial plots, apartments and villas, and agricultural land. The guidance value increase with local development and the demand for the property. An apartment in a well-developed locality in the center of the city has a higher guidance value compared to a property on the city outskirts. 
• The seller can set a price of their will but it must be higher than the guidance value. The buyer cannot force the seller to sell at guidance value. It is a minimum benchmark for the property and must not be sold below the approved guidance value. 

Impact of guidance value 

The guidance value has a direct impact on the market value of a property. It can dictate the property price and influence local real estate investments. If the minimum selling price of the property is high, fewer people will be able to buy it and if the price is lower, more people can afford to buy.

The guidance value affects property sellers as well. If the guidance value is updated to a higher value, the seller can decide the property value proportionally. The guidance value generally keeps increasing and sees an upward trend. It may not always be the case where certain market situations may lead to reduced guidance value. 

The stamps and registration department ensures the guidance value is at par with the prevailing market value in the locality. This will ensure fraudulent activities like black money are not used in the transaction. 

Guidance value in Bangalore

The guidance values are generally revised every year. However, there have been no changes in the guidance value in Bangalore for the last two years owing to the Covid situation. In 2019 the rates increased from 5% to 25% across localities in Bangalore.

The Government of Karnataka revised guidance values in Bangalore and Karnataka in January 2022. The move by the Government might potentially increase the purchase of properties. Since the prices of properties in Bangalore are high, buyers have much to gain from this revision in guidance value.

The government has increased the prices of properties in rural areas as well along with a few regulatory changes on agricultural property. It comes as a lifeboat for rural and agricultural landowners who struggle to sell their land due to regulatory constraints. This will considerably reduce property demand in urban areas. 

There is a growing demand for affordable housing in Bangalore. Due to the inflation in property rates, affordable housing is challenging to achieve. It also acts as a setback for those who wish to own properties in Bangalore. With this revision, real estate investments will increase in Bangalore.

Conclusion

Property guidance value helps a person decide the asset’s worth. It directly impacts the property value. Subsequently, it affects the property tax, as well as the buying and selling of property.

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