The approximate value of a land as maintained by the state government is known as the guidance value of a property. It is the minimum value at which a property can be registered in a state. These rates are revised and published every year by each state government’s department of stamp duty and registration. Thus they vary across years, locations and sometimes even between projects in the same location.
Ideally, the guidance value should be the same as that of the market value of the property and thus these terms are used interchangeably. But, mostly these are lower than the market value of property. In rare cases, these are also higher than the market value of a property. While guidance value is the minimum value set by the state government, market value is the price at which a property can be sold that is agreed by the buyer and the seller based on demand and supply. The property is registered either on the basis of guidance value or market value, whichever is more.
See also: Guidance value Bangalore 2025: Latest rates, property tax impact
What factors affect market value of land?
Location plays a key role in determining market value of a property. Projects in prime areas charge a higher market value as they have excellent connectivity, better infrastructure and facilities etc. Mentioned below are factors affecting the market value of a property.
- Age: The age of a property plays a key role in determining market value of a property. A property that is new commands a higher market value as opposed to old properties.
- Location:Â If a property is located in a prime area, irrespective of its size, it will command a higher market value than a property located in the peripheral areas. A property that has well developed streets has market values that are based on it. For properties that don’t have proper streets developed, the market value depends on the survey number of the property.
- Construction quality and reputed developer: If a property is constructed by a reputed developer with A class construction quality, the project’s market value will be much more than a similar project in the same area.
- Size and floor-rise of the property: Properties with same configuration may be of the same market value or may differ based on the above mentioned factors.
- Legalities: If the property is having any encumbrances attached, then its market value will be far less than a property that is free of any legal issue in the same area.
What are the different names of market value in India?
The market value is also referred to as guidance value, circle rate, ready reckoner rate, guideline value, District Level Committee rate (DLC rate) etc. in the different states in the country.
Why is it important to know market value of a property?
The market value of a land helps people evaluate the price that the land commands before proceeding with the property transaction. Also, this is an important factor for borrowing or lending home loans as this is the foundation of estimating the risk that is associated with giving and borrowing credit. The market value helps in assessing the loan that can be granted and the terms and conditions that can go along.
How is the market value of a land calculated?
The market value of a land is generally calculated based on comparisons. Mentioned are the methods using which you can arrive at the market value of a property.
- Belting method: In this method, the area is divided into three belts with the area that is closest to the main road getting the maximum market value followed by the second and the third belt. While the second belt values at 2/3rd of the first belt’s price, the third belt values at ½ of the first belt’s market price.
- Land and building method: In this method, the value of the land and building are calculated separately based on various factors and then they are totaled.
- Development method: In this method, the market value of land is calculated based on the development seen in that area. This is done by estimating the land’s future value after it is developed by considering infrastructure and construction costs.
- Comparative method of valuation: In this method, properties that are similar and located in the same area are compared and the market value is then found. There may be some changes in this based on property configuration, interiors of the property size, direction, legal issues etc.
- Income capitalisation method: This method focuses on the income that a property can generate based on the rent that it can yield or the profits that can be generated. This method is mostly used in properties that are bought for investment purposes.
- Extraction method: This method is used to value land on the basis of the development that can be extracted from the land. In this existing structures are removed and the land is valued on the basis of the residual structure.
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Why is the difference between guidance value and market value of a property minimum or nil?
If there is a difference between the guidance value and the market value, then illegal practices such as under valuation of property, circulation of black money etc. can take place. The guidance value / market value determines the stamp duty and registration charges, one of the biggest revenue generators of the state government. This is one of the reasons why the difference between guideline value and the market value is minimum.
Market value of land: Facts
- Market value is the lowest that a property can be sold. This gives the seller a minimum price guarantee for his property.
- Even if a property has been bought less than the guidance value, it has to be registered based on the guidance value, or the market value whichever is more.
- If the property has been purchased higher than the market value also, he is supposed to register the property at the actual price he paid.
- The guidance value is set up by the government and the market value depends on the market trends. Note that in case the guidance value is lesser than market value, the buyer cannot compel the seller to sell property at the guidance value.
How to use the market value of land while investing in a property?
Jairaj Reddy decides to buy a property with a market value of Rs 6,500 per sqft. The guidance value in that area is Rs 5,000 per sqft. So, Reddy has to register the property at a rate between Rs 5,000-6,500 per sqft.
On the other hand, if the property price was Rs 5,000 per sqft, but the guidance value was Rs 6,500 per sqft, Reddy will have to register the property at guidance value- Rs 6,500 sqft. This is done so that there is no circulation of black money in the market and the government doesn’t incur any losses from a segment from which it makes most income.
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Housing.com POV
Market value of a property is an important parameter on which price of the property and stamp duty and registration depends. It is important that you are aware of the market value and guidance value, which may be the same or may have slight difference before investing in a property so that you are sure about the affordability, the loan that you can take etc.
FAQs
What are the factors that impact the market value of a property?
Market value of land depends on age of property, location, configuration, litigation etc.
What are the other names for market value of a property?
Market value of a property is also known as guideline value, DLC Rate, ready reckoner rate and circle rate.
Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |