Home prices can’t fall until states drop circle rates

By: |
June 10, 2020 12:01 AM

For instance, the difference between the market value and the RRR in Lower Parel is just 6%, while in Worli it is 8%.

Home prices, drop circle rates, Maharashtra government, ready reckoner rates, Piyush Goyal, Anarock Property Consultants, real estate sectorThe average RRR is Rs 23,597 per sq ft, while the average market value is Rs 56,659 per sq ft.

Unless the Maharashtra government drops the circle rates or what are called ready reckoner rates (RRR), there’s little room for property prices in Mumbai to fall meaningfully. So, while Union commerce and railways minister Piyush Goyal has been exhorting builders to clear inventory by lowering prices, this can’t happen for most localities in the city unless the state government reduces the circle rates.

For instance, the difference between the market value and the RRR in Lower Parel is just 6%, while in Worli it is 8%.This then limits the extent to which builders can drop prices because as Niranjan Hiranandani, MD, Hiranandani Group points out, selling below RR rates attracts a penalty under Section 43CA of the Income Tax Act. “Both the buyer and the seller have to bear a 35% penalty if a property is transacted at below 10% of the RR rates,” Hiranandani told FE.

States continue to raise the RRR year after year so that they boost their revenues by collecting higher stamp duties. However, the market prices have not risen as much. As Anuj Puri, chairman, Anarock Property Consultants told FE, “In such cases, it will be very difficult for developers to cut down prices”. Governments argue that higher RR rates help curb black money flows into the real estate sector; it has been common practice to deflate the value of the transaction so as to pay a lower stamp duty and settle the difference in cash.

There are no doubts a few localities where builders can drop prices by 25-30% or even more; in Tardeo, an up-market area in south Mumbai, the gap between the market value and RR rate is as much as 58%. The average RRR is Rs 23,597 per sq ft, while the average market value is Rs 56,659 per sq ft. Similarly, in Dadar, the average RRR is about Rs 13,624 per sq ft, while the market value is more than twice that at Rs 32,600 per sq ft.

But the average RRR for apartments in Lower Parel is around Rs 32,609 per square feet while the average market value is Rs 34,660 per sq ft. In Worli, a tony neighbourhood in the financial capital, the average RR rate is Rs 35,350 per sq ft against the average market value of Rs 38,560 per sq ft.

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