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The Tamil Nadu government has begun the process of revision of real estate guideline values. The government will also reconsider stamp duty and registration charges levied on sale transactions that today stand at a high of 11% taken together. The industry says that reducing the state tax to 7% to 8% would boost the market and the government can potentially increase land guideline value to offset any loss in registration revenue.

Politics in realty

In 2011, when Jayalalithaa came to power, she started a major campaign purportedly to clean up the real estate sector that had seen a boom during the previous DMK regime. The health of the sector can be gauged from the number of sale documents being registered and the revenue the government earns from these transactions.

In 2006-07 and 2007-08, revenue to the government from registration of documents, of which land documents form the lion share, grew at 45% and 24%, respectively. After a two-year decline, the revenue grew by 2010-11 and 2011-12 by nearly 32%. The growth in 2011-12, during the AIADMK regime, likely happened as a result of increased activity foreseeing a coming squeeze.

Jayalalithaa set up land grab cells and sought to tighten rules to stop bogus sales of land and houses so people were not cheated into paying for the land that did not belong to the seller rightfully. Her government increased the guideline value but brought down stamp duty from 8% to 7% as a sop.

In 2011, when Jayalalithaa came to power, she started a major campaign purportedly to clean up the real estate sector that had seen a boom during the previous DMK regime.

The real estate market goes through ups and downs based on various factors, pushing up or down property prices. The guideline value ensures that no property can be officially accounted as having been bought or sold below a certain price. On this price, stamp duty and registration charges are levied that go as revenue to the government.

Two realtors who have helped to develop some of the biggest projects in the state explained the trade-offs to inmathi.com.

The real estate sector is a major playground for black money that is often tied to political forces. Increasing the guideline value would mean that a greater part of the transaction has to be accounted for and therefore should be in white. Having a significant part of the transaction in white would help parties obtain bank loans since banks go by officially transacted prices. But if the guideline value is too close to the market value of a property, it leaves very little room for the black component of the transaction. This in turn throttles a major avenue for laundering black money, eventually choking the market and pushing it down.

If the guideline value is brought down, it leaves greater scope for black money to get laundered through real estate. This in turn makes the real estate sector more buoyant. A construction boom follows and there is a positive domino effect on the economy.

When the new rules came into force on April 1, 2012, a much greater proportion of the transaction had to be in white although overall the buyers/sellers had to pay a reduced percentage to the government of the total price in white to the government. This slowed down the real estate sector, impacting real estate deals. In a sign of a down market, over the next four years, the growth rates for the revenue from registration slumped to 12%, 8%, 3% and 3%.

In November 2016, the central government implemented demonetization of high value currency. Among the aims of demonetization was to choke black money in the real estate sector that was artificially inflating the economy. RSS ideologue S Gurumurthy argued that high denomination currency from black money had inflated real estate prices.

Demonetization hit the real estate sector hard and on the market prices of property. In 2016-17, growth in registration revenue in Tamil Nadu had reversed and there was a decline of 18% in the revenue the government was getting, compared to the previous year. While in 2015-16, 25 lakh sale documents were being registered, in 2016-17, only some 20 lakh sale documents were registered.

The real estate sector is a major playground for black money that is often tied to political forces. Increasing the guideline value would mean that a greater part of the transaction has to be accounted for and therefore should be in white.

In 2017, recognizing that something needed to be done, the re-elected AIADMK government reduced the guideline value by 33% across the state while increasing the registration charges from 1% to 4%. This opened the avenue for a greater role for black money among other factors and the market started picking up again. Since in the previous year, there was a steep fall in revenue and number of documents being registered, in 2017-18, the growth was also steep. Next year, the growth rate was 16%. The number of transactions increased so did the revenue.

But then Covid stuck in 2019. This year, property transactions that gone into freeze due to Covid have picked up again and the backlog is getting cleared.

White and black

Reducing the registration charges now will perk up the market and lead to more property sales, helping to clear the mounting unsold apartment units, say Inmathi sources.

Registration, however, continues to be a major head in the TN government’s earnings. Some 10% of the state’s Own Tax Revenue typically comes from it. Given the cash crunch the government is facing, any loss of revenue from registration will be hard on the government.

Realtors cite the case of Maharashtra where reduced stamp duty has led to a major real estate boom with Mumbai seeing 50% more registrations than pre-Covid levels. They argue that bringing registration charges back to 1% will ensure a far greater number of transactions and more than compensate the government for any revenue loss due to the reduction.

The trade-off may well be that the government may reverse the 33% downward revision in the guideline value that was done in 2017 but reduce the registration charges to the original 1%. Stamp Duty is shared with local bodies and is charged for the facilities they provide that contributes to the value of the property whereas registration charges are a fee for the service rendered by the registration department. On principle, there is greater scope for reducing registration charges, not stamp duty.

Reducing the registration charges now will perk up the market and lead to more property sales, helping to clear the mounting unsold apartment units


Inmathi sources say that the market value in any case will be significantly higher than the increased guideline value, which means black money will get a chance to play in the market, leading to a rebound. Unsold apartments units may get sold. And government revenue will also increase.

Apartments are sold at full value in any case and increasing the guideline value only changes the nature of the transaction – more white money coming into play. This means the per sq ft price of unsold apartment units may not go up, say sources. In the case of resale of old apartments, the strength of the transaction lies in the land value, not really the constructed building since it faces depreciation.

Overall, an increase in guideline value would mean that more capital gains tax may need to be paid to the central government. But since this is inflation indexed, the increase can be absorbed by sellers who stand to benefit from a buoyant market. Raising bank loans to fund property purchase will help middle class buyers since sellers cannot insist on a high cash component.


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