Will lower circle rates make homes cheaper?


With several governments reducing the circle rates for properties in their area, will it make homes cheaper for the common man or merely increase the cash component in property transactions? We examine

When Anita Juneja bought an apartment in Delhi, in 2012, the cost of the apartment was Rs 2 crore and the circle rate was Rs 1.4 crore. This meant, that she could benefit by paying lower stamp duty. Recently, circle rates in Gurgaon and Dehradun were reduced by 15% and 50%, respectively. Juneja, therefore, has a few pertinent questions.

“Who will be the beneficiary of the lower circle rate – builders, home buyers or the government? Is the rate reduction merely aimed at increasing property transactions? Will a lower circle rate (and not reduction in market prices) mean more cash transactions in the property market?” she questions.

Home buyer Sanjay Chhabra’s experience, on the other hand, reveals the other side of the circle rate anomaly. When Chhabra bought an apartment in Gurgaon last year, the cost of the apartment was Rs 1.4 crore, whereas the circle rate was Rs 1.75 crore. Therefore, he had to pay additional stamp duty, as for the purpose of paying stamp duty, the value considered cannot be lower than the collector rate (circle rate) in the city.

“It really pinches you, when you have to pay stamp duty over and above the market value of your property. There has to be some rationale behind the government fixing the circle rate. Now that the collector rate has been reduced in Gurgaon, I feel I was cheated at that point of time,” laments Chhabra.

 

Positive sentiments

The rationale behind the calculation of circle rate (or lack of it), has remained a hotly debated issue in property markets across cities. Of late, there have been demands, for reducing circle rates in the main property markets, right from NoidaGhaziabad in the north to Mumbai in the west. However, the moot question is whether a reduction will lead to lower property prices.

See also: Properties in Mumbai to cost more as government hikes Ready Reckoner rates

Vineet Relia, managing director of SARE Homes, asserts that the Haryana government’s decision to reduce collector rates, will surely help improve investor sentiments in the real estate market in Gurgaon. “Market rates in Gurgaon have decreased over the years but the collector rates continued to be high, thereby, leading to reduced interest from buyers. With the circle rate cut, all stakeholders will benefit. While the government will receive higher revenue, the residential and commercial segments will witness renewed interest from investors and buyers, on account of lower registration charges,” says Relia.

 

The real problem

However, Nikhil Hawelia, managing director of the Hawelia Group, feels that it is not necessary that property prices will reduce, owing to a cut in circle rates. According to him, property prices are subject to market forces, including demand and supply and input cost. Nevertheless, a mismatch between market rates and circle rates (if the latter is too high or too low), is detrimental, he maintains.

“I don’t subscribe to the view that lower circle rates will encourage buyers to come to the market, with property prices also coming down. While extremely high circle rates compared to the market prices, may deter end-users, very low circle rates will also destroy the eco system of housing, with speculators indulging in cash transactions. Ultimately, there has to be a rational and scientific methodology, to assess the circle rate in a given market,” Hawelia concludes.

 

Quick bytes

  • Gurgaon and Dehradun have recently reduced circle rates by 15% and 50%, respectively.
  • A mismatch between circle rate and market rate (too high or too low), is detrimental to home buyers.
  • High circle rates force buyers to pay extra stamp duty, while low circle rates fuel cash deals.
  • There is no scientific methodology, to assess the right circle rate in any given city.

(The writer is CEO, Track2Realty)

 

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