Bottom Line: Though Circle Rate mismatch (too high or too low) is detrimental to home buyers, lowering Circle Rate doesn’t necessarily brings down property prices.
When Anita Juneja bought an apartment in Delhi in the year 2012, the cost of the apartment was Rs. 2 crore and the circle rate was Rs. 1.4 crore. There is no denying that she had been the beneficiary of paying the lower stamp duty but then the developer had insisted that she must pay the margin money (as they call it) of Rs. 60 lakh in cash.
She has therefore a few questions to ask today when the two cities – Gurgaon and Dehradun – have reduced the circle rate by 15 per cent and 50 per cent this month.
“Will the lower circle rate mean lower property prices for me? Is it just meant to benefit the sector by increasing the property transactions? Who will be the beneficiary of the lower circle rate – builder, home buyer or the government? Would not the lower circle rate and not reduction in actual market prices mean more cash transactions in the property market?” questions Anita.
Juxtaposed to her situation is the experience of another home buyer Sanjay Chhabra that shows the other side of the circle rate anomaly. When he 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. he had to pay additional amount of stamp duty since the transaction can happen not 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. It can not be at the whims and fancies of the local authorities. Now that collector rate has been reduced in Gurgaon I feel I was really cheated at that point of time,” says Chhabra.
- Gurgaon and Dehradun reduces circle rates by 15% and 50% respectively
- Circle rate mismatch to market rate (too high or too low) is detrimental to home buyers
- High circle rate leads to paying extra stamp duty and low circle rate forces to cash deals
- No scientific research methodology to assess the right circle rate in the given city
Circle rate rationality, or lack of it, has been one of the most heated discussions of property market across the cities. The Gurgaon administration has reduced the collector rate by 15 per cent; Dehradun has reduced it by 50 per cent; and the demand has been very vocal from the main property markets right from Noida-Ghaziabad in North to Mumbai in West.
The moot point still stands: will it lead to lowering the property prices. The developers have their own reasons to defend the reduced circle rates. Vineet Relia, Managing Director of SARE Homes asserts that the Haryana Government’s decision to reduce collector rate will surely help improve investor sentiments in the real estate industry in Gurgaon.
“As we have seen, market rates in Gurgaon have decreased over the years but the collector rates continued to be high thereby leading to reduced interest from buyers. However, with the circle rate cut, all stakeholders are expected to benefit. While the government will receive higher revenue, the residential and commercial segments will also see renewed interest by investors and buyers on account of lower registration charges,” says Relia.
However, Nikhil Hawelia, Managing Director of Hawelia Group has a caveat here when he says that it is not necessary that by reducing the circle rate the property prices will also come down. According to him, while the property prices are subject to market forces, including the demand & supply dynamics and input cost, the circle rate mismatch is detrimental in both cases, whether it is too high or too low compared to market rates.
“I don’t truly subscribe the view that you lower the circle rate and the buyers will come out in the market with property prices also coming down. There has to be rationality and a scientific methodology to assess the circle rate in a given market. While too high circle rate compared to market price may deter the end users, too low circle rate equally destroys the eco system of housing with speculators coming out with cash transactions,” says Hawelia.
In a nutshell, lowering the circle rate is no panacea for the housing market to pick up momentum and revive. It may be a catalyst if the circle rate is too high than the prevailing market. And hence, housing market needs a research methodology to assess what is right circle rate in a given market.
By: Ravi Sinha