Govt makes a killing, but builders face cash crunch
The government is the main beneficiary as buyers will now pay more to register a property
Nov 18, 2014
Source : The Times of India


Bengaluru: The steep hike of 15-25% in the guidance value of residential properties in Bengaluru, which kicked in last week, impacts all stakeholders - government, builder, buyer and seller, banks and finance companies.

The government is the main beneficiary as buyers will now pay more to register a property. The registration expense of 6.6% -- 5.6% stamp duty plus 1% registration expense - will now have to be paid on the revised guidance value of the property. Let's break down the numbers: A property with an earlier guidance value of Rs 50 lakh would attract Rs 3.3 lakh in duty. With a revision of 25% in the guidance value, the property is now worth Rs 62 lakh, and at 6.6%, the buyer pays Rs 4.12 lakh as registration charge. For the government, it means an additional Rs 82,000 in revenue.

The revenue department is expected to generate an additional Rs 500 crore by the end of this financial year, from November 2014 to March 2015, with an average additional Rs 100 crore per month.

A higher guidance value and its reflection in the sale deed increases the equity of assets. Home buyers who opt for housing loans from banks and HFCs are eligible for bigger loans, as financial institutions fund up to 70-85% of the property's registered value. This translates into interest subsidy and income tax benefit for the borrower. It also ensures transparency and minimizes cash transactions, and gradually reduces the menace of black money which plagues the realty sector.

It means better business for the banking and housing finance industry by way of 25% increase in lending, besides the processing fee and interest income.

It's builders and property sellers who will face a problem. Flat buyers will have to register at the revised rate, and it's an open secret that builders and sellers of individual houses - barring very few - receive a substantial portion of the sale proceeds by way of cash and register properties at the mandatory requirement of the guidance value. With the upward revision, the cash channel gets choked for builders. There is every possibility, though, of cash transactions continuing in a mutually agreed ratio of black and white.

Vendors and builders will henceforth have to account for sale proceeds as income and pay the requisite income tax. The transactions also attract capital gains tax.

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