A property’s value is determined either by the circle rate or the market value. If you get a property whose price is less than the market value, should you go for it? While it may be appealing because of the financial aspect, this deal may come with some risks. In such cases, due diligence is required to understand why the property is being offered at less than the market value.
What is the circle rate?
The circle rate, also known as the ready reckoner rate or the guidance value, is the minimum value set by the government below which a property cannot be sold.
What is the market value?
The market value is the value at which a property may be sold based on the price that the buyer is ready to pay and the seller is ready to accept.
When do people sell a property at less than the market value?
While it is risky, one can buy property that is less than the market value. Home buyers can buy such a property during a:
- Distress sale
- The property is old and needs extensive renovation
- The property is embroiled in legal complications
Things to know before buying a property at less than the market value
- Reason for the deal: Analyse why the seller is selling the property at less than the market value.
- Legal check: Check if the property has any legal complications, disputes or liabilities that you may have to deal with after purchase.
- Property condition: Check out the condition of the property to see the extent of repairs needed. Budget the amount that you may have to spend post-purchase on the renovation.
- Property location: Check if the property available has good connectivity, a safe neighbourhoodand basic facilities nearby. The absence of these, especially the safety aspect, should be a deciding factor.
- Market trends: Check out the market trends and the prevailing market rate. While you may think that the property price is below the market value, it may so happen that the market value in the locality is reducing.
- Stamp duty of the property: While you may buy the property at less than the market value, you will have to pay the stamp duty on the circle rate or the actual market value.
- Home loan: While you may buy property below market value, the bank will approve a home loan only on the market value. Thus, be prepared to pay a corresponding down payment.
Housing.com POV
While buying a house below the market rate is attractive, there are potential risks involved. If you are considering investing in a property available below the market price, do extensive research to know if the property has any legal issues. Understand the real estate market trends in the location, evaluate the property’s condition and make an informed decision.
FAQs
Can a property be sold for less than market value?
Yes. A property’s value can be less than the market value.
What is the stamp duty that you have to pay for properties bought at less than market value?
You have to pay the stamp duty as per the guidance value or the existing market value even if you buy a property at less than the market value.
What is the circle rate of a property?
Circle rate is the minimum value below which you cannot sell a property. The stamp duty of the property depends on the circle rate.
Can we register the property at less than the guidance value?
If you buy a property at a price lower than the market value, it is necessary to register the property at guidance value.
What is the difference between market value and sale price?
The actual value of the property in the market is the market value. The sale price is what the buyer gives for the property.
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