The cut in circle rates in Gurugram is likely to make the region's property more affordable. However, will it also adversely affect the other property markets of NCR?
After a 10-15% cut in the last financial year, circle rates have again been reduced by 3-8% in Gurugram, which is likely to make the region’s property more affordable apart from giving some relief to homebuyers. However, contrary to the general perception that these rate cuts will now make Gurugram a sure winner and also adversely affect the other property markets of NCR, like Noida and Ghaziabad, industry experts believe that the cuts are unlikely to make much impact.
Anuj Puri, Chairman, JLL Residential, says, “The recent circle rate cuts are in line with the price decline that has been seen in Gurugram over the past year or so. However, the cuts are only going to impact the stamp duty payouts for buyers, which are small compared to the overall acquisition costs. The prices in Gurugram are still higher compared to the other residential markets. This is more of a sentiment-driven step and other factors such as developer profile, completion timelines and RERA implementation are more key considerations for buyers. This only provides some relief to buyers over and above the great discounts/bargains available in the primary market today.”
It should also be noted that stamp duty is payable only upon registration and for an investor who is looking to exit before the completion of a project, the circle rate will have no bearing. “Only a person looking for self-use or long-term investment will be paying stamp duty upon completion of the project. The benefit will extend now to lower stamp duty payment over lower prices currently prevailing in the market with developers offering good bargain,” informs Puri.
Explaining circle rates further, experts say that these rates are government benchmark rates of real estate in various markets. Typically, authorities undertake market surveys of transaction prices and evaluate rates of various property over a period of time in order to derive the circle rates.
“The change in circle rates (both upward as well as downward) shows the active tracking of the real estate sector by concerned authorities. The circle rates should be on par with the market value of the property to realize full value sales consideration to be reflected in sales deed and payment of full stamp duty. In the current market conditions, the circle rates in many micro markets are more than the market rates. In this case, if the transaction happens at lower than the circle rate, both the seller and buyer will be taxed, depending upon the circle rates. This was dis-incentivizing to undertake transactions in such markets,” says Amit Chawla, Associate Director, Valuation & Advisory Services, Colliers International India.
Although the said move is an added advantage for two prospective parties to transact, but reduction in circle rates cannot be considered a major catalyst for speedy transactions in the market. “The fundamental of demand/supply, infrastructure, locations, etc. are far more important factors to derive any transaction in the market. Also, all the markets in Delhi NCR have their own dynamics in terms of product offerings, infrastructure, employment opportunities, ticket size, etc. which are the major consideration in making a purchase decision and not primarily circle rates,” adds Chawla.
Industry experts say that while the slash in circle rates will benefit buyers, it is unlikely to pose any competition to the other markets of NCR.
For instance, Deepak Kapoor, President, CREDAI Western UP, says, “The Noida and Greater Noida markets are different and have been posing a challenge to the Gurugram market. Therefore, a cut of 3-8% in the circle rates of Gurugram will not make the prices competitive enough to make a dent in the markets of Noida and Greater Noida.”
According to Kapoor, the prices in Gurugram are already at a premium, mostly upward of Rs 5,500 per sq ft on an average, while Noida and Greater Noida have properties with prices hovering around Rs 3,000 per sq ft. Therefore, the slash in the circle rates will benefit people who were planning to buy property in Gurugram and also expedite their decision, but in no way it means competition to other NCR towns.
Developers also say that the cut in the circle rates boosts transactions and generates revenue for the state. The bigger effect comes in the form of reduction in stamp duty. However, this is not correct to say that the reduction in the circle rates in Gurugram will affect the other markets of NCR. “It will surely not affect the property markets of Noida and Greater Noida because of the different price brackets. In fact, both the markets are different in target audience and end use. Noida and Greater Noida have been attracting most of the end users in the middle price segment. On the other hand, Gurgaon has been a destination for NRIs and HNIs,” says Suresh Garg, CMD, Nirala World.
Dhiraj Jain, Director, Mahagun Group, is of similar view. “Reduction in circle rates in Gurugram will definitely bring down the cost of property, but not to such an extent that it will start matching with the markets of Noida, Ghaziabad or for that matter Faridabad. Therefore, we believe that these markets will continue to have their own charm,” he says.
Developers also don’t believe that in order to compete with Gurugram, there is any urgent need for reduction in the circle rates of other markets too. “The cut in the circle rates in Gurugram will have some impact on the final cost of property there, which a buyer has to bear before taking its possession. This reduction will be more impactful in case of property which will be newly launched because the cost of land procurement will be substantially less compared to earlier scenarios. However, other major NCR markets might remain unaffected and not follow suit as prices are already competitive in the region and there is no need for further cuts,” says Kushagr Ansal, Director, Ansal Housing.