What Is The Guidance Value Of A Property?

Guidance Value, also known as the circle rate or ready reckoner rate, is the minimum price per unit area, where property is registered with the government. State governments usually determine it and vary depending on the location, property type and amenities. 

Understanding the significance of the guidance value of a property has great significance for various people involved in the process of buying or selling the property: 

• For Property Buyers: As a buyer, the guidance value will help you get better clarity; transactions will happen according to a baseline value, so there are fewer chances of an overpayment. 

• For Property Sellers: If you are selling the property, then knowing the guidance value’s meaning will give you a better understanding of the minimum value at which your property can be sold and registered. This will also help in negotiating the price. 

• For the Government: The property guidance value acts as a benchmark based on which stamp duty and registration fees are calculated. This helps avoid any undervaluation and tax evasion. 

As you read this blog, you’ll get answers to many questions, such as calculating the guidance value, its importance and how different it is from the market value of a property. 

So, read on to clear all doubts you might have!

What is the Guidance Value of Property?

The guidance value is a government-mandated minimum value for registering property transactions. It ensures uniformity in valuation and prevents undervaluation done to evade taxes. 

Purpose and importance: 

• Fair Valuation: Sets a benchmark at which a property is evaluated fairly. 
• Tax Compliance: Reduces any chances of underreporting property values, ensuring appropriate stamp duty collection. 
• Transaction transparency: Helps buyers and sellers align their expectations regarding property value. 

Applicability:

• Residential Properties: Apartments, villas, independent houses. 
• Commercial Properties: Office spaces, shops and retail spaces. 
• Industrial Properties: Factories, warehouses and other industrial facilities. 

Factors Influencing Guidance Value

Many factors influence a property’s guidance value:

• Location: 
  • Properties in a prime area, with good connectivity and proximity to business hubs as well as developed infrastructure, typically have higher guidance values. 
  • Example: Properties like Raymond Realty’s Address by GS Bandra, which is close to the Mumbai metro’s Aqua line as well as the upcoming line, will tend to have a higher guidance value compared to those in a remote area.

• Property Type: 
  • Apartments: They usually have guidance values based on the built-up area (sq. ft.) 
  • Plots: Their value is based on the land area, often higher for corner plots, or land that has road frontage. 
  • Villas: Consider both the land and the built-up area. 
  • Commercial Spaces: They have higher guidance values as they have better potential for income generation. 

• Government Regulations: 
  • State governments regulate the guidance values periodically to go with the current market trends and inflation. 
  • Policies or incentives, like the reduction of guidance values during economic slowdowns, also play a role. 

• Market Trends: 
  • When the demand exceeds supply, the market value often surpasses the guidance value, so periodic revisions are always needed. 
  • At the same time, when the real estate market is slow, it may lead to little to no changes in guidance values. 

• Amenities and Surroundings: 
  • Properties like those by Raymond Realty, which are located near reputed schools, hospitals, shopping complexes and recreational facilities command higher guidance values. 
  • If the property is surrounded by parks, waterfronts or a gated community, then it also influences valuation positively. 

Difference Between the Market Value and Guidance Value

The market value v/s guidance value debate is an ongoing one. You might often wonder which one is better and what the differences between them are: 

Difference by Definition: 

• Guidance Value: Fixed by the government as a baseline value for registering the property, often conservative when compared to market prices. 
• Market Value: Determined by real-time factors like demand, supply, location and buyer sentiment. 

Practical Implications: 

• For Buyers: When you purchase a property, understanding the difference can prevent overpayment on stamp duty, as the registration fee is calculated based on whichever is higher: the guidance value or market value. 
• For Sellers: When you are selling the property, it will help balance between declaring the transaction value and the actual price, ensuring compliance without losses. 

So, for example, take a property whose market value is Rs 1 crore and guidance value is at Rs 80 lakhs. In this case, since the market value is higher, then the registration fees and stamp duty will be calculated based on that. 

How to Check and Calculate the Guidance Value? 

You may now be wondering, ‘How to find guidance value of property?’ There are two ways you can do this. 

1. Checking Guidance Value Online: 

• Visit the Official State Portal: Maharashtra uses the Ready Reckoner system, while Karnataka uses the Kaveri Online Services portal. 
• Enter Property Details: Input the district, taluka, village and property type. 
• Retrieve the Results: The portal will display the guidance value per unit area. 

Example: In Mumbai, the guidance value for properties located in suburban areas like Malad may differ from properties located in a prime area like Bandra, because of location and differences in infrastructure. 

The guidance value property calculation is pretty simple. Here is the formula: 
Guidance Value = Total Area (sq.ft) x Guidance Value per sq.ft. 

Example: 
Property Area = 1000 sq. ft.
Guidance Value per sq. ft. = Rs 5000/sq. Ft.
So, 
GV = 1000 x 5000
GV= Rs 50,00,000. 

Let’s take a look at some examples according to the region: 

• In metro cities like Mumbai, the guidance value typically ranges from Rs 50,000 to Rs 1 lakh per sq. ft.
• In smaller towns, the value is generally between Rs 5000 and Rs 20,000 per sq. ft. 

How the Property Type Impacts Calculation: 

• Residential: This calculation is simple; it simply involves the multiplication of area and guidance value. 
• Commercial: This may also include additional components, like the parking and amenities. 
• Agricultural Land: Geographical factors, like proximity to urban zones, are often considered while calculating the guidance value. 

The Role of Guidance Value in Real Estate: Impact, Challenges and Investment Decisions.

Impact of Guidance Value on Stamp Duty and Registration Charges: 

• Direct Revenue Impact: 

The stamp duty and registration charges are calculated based on whichever is higher: the guidance value or market value. So, any change in the guidance value also influences the government revenue. 

Example: A rise in guidance value means there will be a higher registration fee, thus increasing state revenue. On the other hand, a reduction would mean more transactions, thus balancing the loss of revenue through volume. 

• Transaction Costs for Buyers: 

As a buyer, you might face a higher transaction cost when the guidance value increases, they directly impact stamp duty and registration expenses. 

Transparency and Legal Framework: 

• Enhancing Transparency: 
  
  Guidance values set a clear standard for property valuation, reducing potential disputes between you and the seller, thus curbing the practice of undervaluing properties to evade taxes.
  
• Legal Recourse for Inflated Guidance Values: 
  
  If you believe that your property’s guidance value is unreasonably high, then you can do the following: 
• Submit a formal grievance with the sub-registrar’s office. 
• Seek reevaluation by providing evidence, such as market reports or recent transaction data. 
• File a legal appeal in higher authorities or courts, if deemed necessary. 

Discrepancies and Challenges: 

• Common Issues: 

• Undervaluation: The actual market value is higher than the guidance value, leading to a reduced tax collection. 
• Overvaluation: Guidance value often exceeds the market value, which thereby increases transaction costs for no reason. 

• Addressing these discrepancies: 

• Buyers: Verify the guidance value using official government portals, and compare them with local market rates before you proceed with transactions. 
• Sellers: Consult the real estate experts, who will align sale prices with both values and ensure compliance. 

Role of Guidance Value in Real Estate Investment Decisions: 

• Strategic Use for Investors: 

• Identifying the Undervalued Areas: Investors can spot those regions where the market value v/s guidance value numbers vary largely, with the former being higher. This usually indicates the potential for future appreciation. 
• Negotiation Advantage: Knowing the importance of the guidance value helps you negotiate better deals while still staying compliant with the regulations. 
• Understanding Tax Implications: The guidance value also ensures that the stamp duty is calculated accurately and avoids any unexpected costs. 

Guidance Value by Region: Mumbai Focus

Special Focus: Stamp Duty Ready Reckoner Value in Mumbai

• Overview of the SR Value (Ready Reckoner): 

The Ready Reckoner Value (RR) in Maharashtra is the state’s equivalent of guidance value. It is updated periodically to reflect the market trends and used as a standard for property registration. 

• Guidance value property calculation based on the RR Value:
  • Identifying the property zone (suburban, urban or rural) and category (residential, commercial or industrial)
  • Access the RR chart provided by the Maharashtra Government. 
  • Multiply the RR rate by the area (in sq. ft.)

Example: 

• RR Value for a property in Bandra West: 
• Rs 30,000/sq. ft. 
• Area: 1000 sq. ft. 
• Guidance Value = 30,000 x 1000 
• = Rs 3 crore. 

Regional Nuances in Mumbai: 

The guidance value also differs significantly across neighbourhoods, because of factors like demand, infrastructure and type of property. So, properties in South Mumbai, like Colaba or Marine Drive, will command higher values than suburban areas like Andheri or Kandivali. 

FAQs

1. What is the guidance value of a property?
   The guidance value is a minimum rate that is set by the government for property registration, based on the location, property type and amenities. 
   
   
2. What is the main purpose of guidance value in real estate?
   To ensure fair valuation, curb tax evasion and provide a benchmark for calculating stamp duty and registration fees. 

3. Who decides the guidance value of properties?
   The state governments do this, usually through revenue departments or local authorities. The value is determined by conducting surveys and market analysis. 

4. Can the guidance value be higher than the market value?
   Yes. In some cases, the guidance value can exceed the market values, especially in those areas facing a decline in real estate demands. However, buyers still have to pay the stamp duty on the higher value. 

5. What happens if a property is registered below the guidance value?
   Then the sub-registrar’s office rejects the transaction. Whether you are a buyer or seller, you have to ensure that the declared value is at least equal to the guidance value. 

6. How often is guidance value revised by state governments?
   Guidance Value is typically revised annually or bi-annually to go with the market trends and inflation. 

7. Is guidance value the same as market value?
   No. The guidance value is a number fixed by the government, while the market value is determined by the demand, supply and negotiations between you and the seller. 

8. Does guidance value impact capital gains tax on property transactions?
   Yes. To calculate the capital gains tax, the sale value has to be equal to the guidance value. If it is lower, then the guidance value will be considered as the deemed sale price. 

Conclusion

Understanding the importance of guidance value is vital when it comes to fair property transactions, compliance with legal norms and minimising tax liabilities. Whether you are buying or selling the property, verify the guidance value with the state government portals or by consulting legal professionals. 
Ensure that you are getting an accurate valuation for the property, and avoid any legal disputes by getting advice from real estate experts and consultants. 
In this blog, we covered a lot: from the meaning of the guidance value to its calculation process and about a property’s guidance value in India. If your doubts have been cleared, then you can now step into the world of real estate investment!