The recent upward revision by the Karnataka government in the guidance value or government rate has further heated up property prices in India's infotech capital, Bangalore, driving away prospective buyers in the budget segment to nearby towns.

Within a span of 32 months, the government has made upward revisions thrice —the earlier two revisions were in August 2004 and October 2005. The current guidance value in Bangalore has almost trebled property prices compared with five years ago. For instance, the guidance value of land in Jayanagar—one of the first planned residential areas in India and believed to be the largest planned residential area in Asia—shot up to Rs 5,000 per sq ft in 2007 from Rs 1,100 in 2002.

According to the managing director of Chartered Housing (P) Ltd - The recent revision increased the guidance value by 50-300% across the city. The combined impact of Vat, service tax, stamp duty imposed on joint development projects, the recently enacted labour law and clearance from various authorities have already pushed up property prices by 20-25%. The recent hike in guidance value will further jack up prices by 8-10%.

Currently, around 1.40 lakh residential units are under construction across the city, while developers are raising commercial buildings on 70 million sq ft. Because of the recent hike in guidance value, industry players expect that buyers would adopt other cross-cut methods to postpone registrations by executing agreements, memoranda of understanding and general power of attorney etc., causing revenue loss to the government.

Kamal Sagar, principal of Shibanee & Kamal Architects, said the property price jump would force prospective buyers to eye nearby towns, like Hosur and Mysore.

Differing with this view, Ankur Srivastava, managing director (India), Debenham Tie Lieung DTZ, a global property consulting firm, said the recent revision in guidance value was not expected to affect the market as realty prices (market value) in Bangalore were already at a peak. ‘‘In fact, the government’s revision has placed guidance value closer to existing market value in the IT city,’’ he said.

As per the Industry sources, Bangalore followed Mumbai, Delhi and Chennai in property prices. Mumbai had properties in the range of Rs 6,000 to Rs 60,000 per sq ft followed by Delhi with Rs 6,000 to Rs 50,000 and Chennai at Rs 1,500 to Rs 20,000. In Bangalore, prices ranged from Rs 2,000 to Rs 15,000 per sq ft.

The industry is expecting a minor correction in Bangalore in the coming months due to reasons like rising interest costs and artificial jump in land prices. If this happens and market value declines below the guidance value, then buyers and sellers in Bangalore would be left groping in the dark, as in 1995-96, when city real estate prices crashed.
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