Housing sector hit on the back of steep hike in guideline values


At a time when land values started stabilising in and around Chennai, the Tamil Nadu government has increased the guideline values for land registration purposes by hiking the values from 60 per cent to 300 per cent effective April 1. This has sent shock waves among the industry and the land owners and property developers are in a piquant situation now.

The government’s reduction in stamp duty by 1 per cent has not gone well with the industry when the guideline values were raised to abnormal levels. The real estate sector is in for turbulent times due to sudden and abnormal hike in guideline values and the worst hit sector will be affordable housing segment.

According to official sources, though the revenue for the two month period (April and May) was up by Rs 100 crore, the volume of transaction has come down drastically.  Industry sources say that city area transactions fell through due to reluctance on the part of buyers to absorb the hike in stamp duty.

In vibrant commercial areas like Whites road, the guideline value soared to Rs 16,000 above the market value, say property consultants.  In other city areas like Abhiramapuram, the value for residential area is more than the commercial value (see table).  The state government in their anxiety to curb the unaccounted money in real estate transaction has sent a wrong signal to the market which will adversely impact the housing development.

Land transactions are not happening nowadays not because of the steep hike in guideline values alone but due to the cascading impact of RBI restrictions on bank funding to realty sector, uncertainty in FDI investment, global meltdown, higher expectations of PE funds and soaring land value.  What has aggravated the whole scenario further is the sudden hike in guideline values.

The worst hit in the current scenario is the affordable housing segment and the common man for whom the dream of owning a shelter will only get longer. Though official sources claim that the hike in guideline values range from 60 per cent in suburbs and peripheral areas, lack of infrastructure and diminishing margins for developers will not encourage them and only prolong the overall development of affordable housing in the coming months.

Yet another segment that bore the brunt of the hike in guideline values is the land owners in exigencies. The distress sale is not happening due mainly to the hike in guideline values, say industry sources.

V Nagarajan, Property Consultant

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