Tuesday, 23 December 2014

Black & White - Delhi circle rates up-the good and the bad

In a recent announcement by the Delhi government, Delhi circle rates have been raised up to 20% higher than the existing rate structure. This could have adverse as well as positive effects on the industry.

Circle rate is the minimum value at which the sale or transfer of a plot, built-up house, apartment or a commercial property can take place. Market price is the value of such an asset for a transaction between a seller and buyer which is done at an arm length's principle with the price determined by the market forces of supply and demand.

Rohan Sharma, senior manager Research & REIS, JLL India points out, “Circle rates are the minimum authority-defined prices at which a property sale or transfer can be done between two parties, and also determine the associated stamp duty and registration charges to be paid for such a transaction. This is the 'floor price', and the actual transaction price can be higher than this, resulting in higher stamp duty to be paid out. Circle rates are usually defined by the local state government's revenue departments or the local development authorities, in line with what they perceive the prices at which property sale or transfer should be undertaken. As such, circle rate is usually a determinant or a reference rate at best. Market rates, on the other hand, are determined by the seller's expectation of price and the buyer's inclination to pay."

Delhi government has notified a revised circle rate regime that is 20 per cent higher than the existing rate structure across the municipal valuation colony categorization from A to H. Circle rates have also been revised upwards for apartments. Buyers in category A colonies such as Vasant Vihar, Maharani Bagh, and Golf Links will now have to pay stamp duty on property valuation of `7.74 lakh per sq meter as against `6.45 lakh so far.

Talking about this hike will impact the property market and whether it will be an adverse effect or a positive one, Prashant Solomon, MD, Chintels India says, “As seen in many cases the actual property transaction and finalization of a deal takes place at much higher price than the governments prescribed rates (circle rates). Since the buyers are forced to register the property at circle rate, they have to fork out additional cash to compensate for the actual transaction value. Though off course the hike in circle rates will increase the revenue for the government, it will also lead to cleaner transactions and lesser involvement of black money component. The adverse effect is property value will go up, leading to a fall in demand hence will push the demand in other parts of NCR."

Mohit Goel, CEO, Omaxe Limited says it is a positive step for the real estate market and the economy in general.“The raise in circle rate will not have much impact on real estate prices,“ he says.

Sharma too points out that though circle rates and market rates are connected, they have a limited impact on each other. He explains, “While, the market rate can never be below the circle rate, a significantly higher difference between them indicates a lag between market performance and the authority's view of it. This is the reason for black money transactions in the Indian real estate domain."

However, some experts say the raise will adversely impact the property market as circle rates in some colonies appear to be higher than the actual market rates.

Source: PropertyatNeoDevelopers.Wordpress.Com

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