Realty experts and economists in Tamil Nadu are divided over the long term impact of the Government's latest notification on slashing guideline value of properties by 33%. What they do, however, agree upon is that the state has now created an environment which is highly conducive to the flow of unaccounted money.
Guideline value is the price of property set by the government below which sale of a property cannot happen. Usually the actual market value is higher than the guideline value, and the difference in the two often ends up becoming the 'cash component' in the deal, which contributes to generation of black money. The guideline value for 3.97 crore survey numbers and 1.84 lakh streets is available on the website, www.tnreginet.net and was last revised in April 2012. The current revision which comes after a large gap of five years, experts believe, will not affect sellers to a large extent -- courtesy black money.
"The actual transaction will remain the amount that the buyer and seller agree upon," says Venkatesh Athreya, an economist.
"What will happen now is that the registration papers will carry the guideline value. The rest of the money paid will be black. The flow of unaccounted cash will only increase. This move if aimed at tackling the soaring market value of property, may not work," he explains.
Former president of the Tamil Nadu chapter of Confederation of Real Estate Developers Associations of India (CREDAI), N Nandakumar, further adds that the move is complete 'hogwash'.
"The net effect of the slash on guideline values will be insignificant because of the hike in registration fees," he says. In order to make up for the loss of revenue the state will face, as a result of reducing guideline values, they will be levying a four percent fee on conveyance, exchange, gift and settlement deeds. "This move will only create an environment for unaccounted money to flow back into the economy. Unless they rollback this hike in registration fee, the original purpose of the move will not be met with," he adds.
According to Nandakumar, the purpose of this slash in guideline values is to create a level playing field for smaller realtors and builders. "In several areas the market prices of property is lesser than the guideline value. This is not good for sellers. We cannot write off this move yet," he claims.
A report in The Hindu says that ahead of the slash in prices, five percent of properties in the state had higher guideline value than the market value. This came to be after the Tamil Nadu Government pushed it up by almost 10 times at several areas in 2012. But District Collectors were reportedly not willing to accept the proposals for rectification of the anomaly.
A team of officials from the Registration Department, found the guideline value to be high and suggested a reduction. The proposals include a 20%, 30% or 40% reduction in the guideline value, depending on the area where the properties are located, according to the report and a warning that revenue from registration of sale deed will reduce.
The State government, according to reports, collects around ₹7,300 crore as stamp duty from registration of sale deed of property per year.
"This is completely atrocious," declares Professor Srinivasan, Associate Professor in Econometrics at Madras University. "Just because there is a problem in your administration, people can't be paying more tax. There is a redressal system, where a person can appeal to the collector if guideline value is higher than the market value. You can't slash the value across the state for this," he explains.
According to the professor's calculation, the registration fee has been hiked atleast 100%. "The move will not bring in any new buyers because the final tax to be paid is higher. The objective, if it is to open up the market, has been nullified. What it will allow, however, is place for more black money in transactions," he concludes.