While property value is bound to fall, real estate insiders say that ‘cash component’ of property deals could also increase.

Property buyers rejoice TN govt slashes land value guideline by 33 pc(Image for representation)
news Real Estate Thursday, June 08, 2017 - 19:26

Months after demonetisation dented the real estate market in India, the state government of Tamil Nadu has now decided to slash the guideline value of land by 33 percent. In order to make up for the loss of revenue the state will face as a result of this, there will be a four percent fee levied on conveyance, exchange, gift and settlement deeds. 

The notification from the state government says that the discounted prices will be enforced from June 9.

The move, real estate industry insiders say, is bound to bring value of properties down significantly, benefitting buyers looking for property.  

Guideline value is the price of property set by the government below which sale of a property cannot happen. A seller can sell for more than the prescribed value, if the buyer is willing to pay, but not below that. Usually the actual market value is higher than the guideline value, and the difference in the actual market value and guideline value often ends up becoming the 'cash component' in the deal, which contributes to generation of black money.

Following the move to ban Rs.500 and Rs.1000 notes in November, the sale of secondary properties and real estate saw major setbacks. In 2016, Chennai alone reportedly saw a notional revenue loss of Rs.1,100 crore. In addition to this, it was reported that there was a 46% fall in the sale of residential apartments between October and December 2016. This move to reduce the guideline value, the government claims, is in accordance to former Chief Minister J Jayalalithaa's election manifesto.

"This is sure to bring the value of property crashing down. But the market has been dull anyway, so perhaps the government wants to increase the pace of sale of properties. But this also means the cash component in the sale of property will go up now, and those who have the cash will benefit from the lower prices," said a real estate businessman not willing to be identified. Simply put, he says that those who remain flush with cash even after demonetisation could benefit from the slashing of the guideline value. 

This announcement does not come completely as a surprise. However, people who are currently attempting to sell their properties, may face a significant loss. 

The Hindu had earlier reported that the state government was contemplating this, and had visited several other states in the country to enquire about the value of property.

“Finding the guideline value in Tamil Nadu to be higher, the team had suggested a reduction but had warned that the revenue from registration of sale deed could also fall correspondingly, said a source,” The Hindu reported, adding that, “The Tamil Nadu government increased the guideline value on April 1, 2012, pushing it up by 10 times in some areas.”

Speaking to The News Minute, Professor Srinivasan, Associate Professor in Econometrics at Madras University, said, "The main reason they have done this is that the number of property registrations have come down. But I would say that instead of reducing the guideline value, that should have reduced he tax rate. This would incentivise people to declare the true market value of the property and reduce black money transactions."


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