Slashing circle rates the only option to cut housing prices further – Here’s why

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Updated: June 16, 2020 1:18 PM

During the last 4-5 years alone, the gap between the market value and the ready reckoner rates (also known as circle rates) has reduced significantly (to as low as 6%) in India's top cities, which was more than 100% in some areas in 2015.

real estate, real estate in India, boost buyer demand, property sales, circle rates, Slash circle rates, ready reckoner rates, Mumbai, Pune, Gurgaon, Noida Ready reckoner rates (or circle rates) are the minimum values set by a state government below which a property cannot be registered.

In a bid to discourage black money transactions in real estate and bring the ready reckoner (RR) rates on a par with the actual market prices of property, the government has been increasing the circle rates on a regular basis. The result being that during the last 4-5 years alone, the gap between the market value and the ready reckoner rates (also known as circle rates) has reduced significantly (to as low as 6%) in India’s top cities, which was more than 100% in some areas in 2015.

For instance, in Mumbai’s Lower Parel area, the gap between the two is just 6% today as against 37% five years ago, and the average market value here as on Q1 2020 is Rs 34,660 per sq ft while the RR rate is Rs 32,609 per sq ft. While average market prices saw maximum appreciation (up to 7%) in some of Mumbai’s hotspots during Q1 2015 to Q1 2020, the average ready reckoner rates have increased by over 30% in the same period, and similar trends have been noticed in other key cities, including Pune, Gurgaon, Bengaluru.

In Pune’s Baner area, the current average market value is Rs 7,290 per sq ft while the average RR rate is Rs 6,800 per sq ft – a difference of just 7% now as against 37% back in 2015, according to a report by ANAROCK.

In Gurgaon, the gap between the two rates has narrowed during the last 4 years. Sohna Road, for example, saw the gap reduce to 35% in 2020 as against 38% early in 2016. In the Golf Course Road, the difference has reduced to 75% now as against 104% in 2016. Interestingly, average prices have also reduced at Golf Course Road to Rs 13,150 per sq ft in 2020 as against Rs 13,700 per sq ft in 2016.

Contrary to other top cities, Noida saw a reduction of as much as 10% in the circle rates in the last 2 years — a step taken to boost real estate demand. Circle rates on Noida Expressway have reduced from Rs 4,700 per sq ft in 2016 to Rs 4,366 per sq ft in 2020. As a result, the gap between the market values and circle rates has increased in the last four years. The difference between the two rates was 10% in 2016, which is now at 16%. During the same period, average market values in Noida have also decreased by 2% – from Rs 5,185 per sq ft in 2016 to nearly Rs 5,075 per sq ft in 2020. Similarly, in Sector-150 the circle rates have remained stagnant at Rs 3,716 per sq ft during the last four years.

In fact, during the last 4-5 years, most state authorities regularly increased the RR / circle rates in cities to align them with market values. Dwarka Expressway in Gurgaon, for instance, saw circle rates rise by 43% in the last four years – from Rs 2,900 per sq ft in 2016 to nearly Rs 4,133 per sq ft in 2020. However, market values in this period increased only by 10%. The gap between the two rates is narrowing significantly. Other cities show some equally interesting trends, says the report.

Property Market in Gurgaon 

Commenting on this trend, Anuj Puri, Chairman, ANAROCK Property Consultants, says, “The gap between market values and RR/circle rates in many areas is as low as 6-7%, equal or even negative. Registering a property below circle rates is not permissible. Section 43CA of the I-T Act says that developers/sellers will attract penalties for selling lower than RR rates. Moreover, even if buyers somehow purchased property below the circle rates, they will bear an additional tax burden as the difference between two rates is taxable – both in the hands of the buyer and seller.”

Thus, “reducing RR rates or circle rates would reduce stamp duty on property purchase, thereby boosting buyer demand and also providing relief to developers as the multiple premiums they pay to the state governments are linked to the RR rates,” he adds.

It may be noted that ready reckoner rates (or circle rates) are the minimum values set by a state government below which a property cannot be registered. Each area within a city has its own RR rate on which stamp duty is calculated. To align circle rates with the actual market prices, most state governments previously regularly reviewed and increased the RR rates in cities either y-o-y or in two years. However, market values have increased only marginally in the same period.

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