Land value hike dampens the mood in Andhra’s real estate sector

At a time when there is uncertainty over the fate of the dream capital city Amaravati and several other infrastructure projects, Andhra Pradesh government’s decision to increase the land value and registration charges across the state has further dampened the mood.

The real estate sector, which is already facing a slump, fears further decline in the demand due to the government’s move to increase the land rates by five percent in urban areas and 10 per cent in semi-urban and rural areas.

“As the market is already facing a negative trend, the hike in land value and registration charges will further dampen the investor sentiment,” said Y V Ramana Rao, president of the Vijayawada chapter of the Confederation of Real Estate Developers Association of India (CREDAI).

Also Read: What next for Amaravati, the dream Andhra capital?

The market and registration values have come down drastically in several cities and towns after the change of guard in the state. There are no buyers even at book value and with the increase in land value again, the volumes are expected to decline further.

“Forget about the interests of the real estate industry, this move is not in the interest of people,” said Gadde Tirupathi Rao, the general secretary of the AP Chapter of the National Real Estate Development Council (NAREDCO).

Resource crunch

Since bifurcation in 2014, Andhra Pradesh has been facing a severe crunch in resources and struggling to mobilise funds for the ambitious capital city project and a string of other populist schemes.

The cash-strapped government is desperately looking for ways to shore up its revenues. The hike in land prices and registration charges is expected to help the government meet its annual revenue target of ₹6,600 crore set by the Stamps and Registration Department.

It has been a regular practice of the state government to enhance the land value periodically. The previous Telugu Desam Party (TDP) government had increased the rates in 2015 and 2018.

However, the realtors have expressed their displeasure over the hike, which came into effect from Thursday (August 1), as the sector had already been performing poorly.

Also Read: World Bank ‘ready’ to fund other projects in Andhra worth $1bn

With the increase in property value, the registration rates will also shoot up, which will impose an extra burden on buyers. The impact will be felt more in urban and semi-urban areas. The realtors, particularly in the Vijayawada-Guntur region, are concerned that this move will further pull down the real estate sector which is already smarting under a downslide.

“We have appealed to the government not to go ahead with enhancement of land prices,” said Ch. Sudhakar, president of the AP chapter of CREDAI.

Already, the buying and selling of plots in the capital city region have come to a standstill now because of uncertainty surrounding the construction works following the change of government.

Auto sector feels the pinch

The ancillary units coming up around the Kia Motors plant in Anantapur district are feeling the pinch with the AP Industrial Infrastructure Corporation (APIIC) increasing the rate of lands earmarked for them.

The previous TDP government had given land at ₹6 lakh per acre. It has now been increased to ₹60 lakh. Even before a full-fledged automobile ecosystem can take shape, there is a steep increase in land rates.

South Korean carmaker Kia Motors had made a phased investment of over $1 billion for its Anantapur plant and the vendors had made a committed investment of over ₹4,000 crore, creating an ecosystem for the auto major.