The Delhi government recently announced a reduction in the circle rates by 20 percent for all property types across the city. The move is likely to bring down the exorbitant property prices and trigger real estate investment in the National Capital.
To boost the ailing real estate market in Delhi, the State government has slashed the circle rates of commercial, residential, and industrial properties in the city by 20 percent. The reduction will be applicable for all the eight categories of properties, i.e. A, B, C, D, E, F, G and H, for the next six months. As opined by the experts, the move is a booster shot for the Delhi’s real estate market that has been grimly impacted post the Coronavirus pandemic. The intent behind the decision is to soften the property values across the city and make real estate substantially cheaper for people willing to buy a property.
According to Achal Raina, COO, Raheja Developers, “The decision by the Delhi government comes at a time when the industry is recuperating from the severe impact of the COVID-19 pandemic. It will make the properties more affordable and increase the number of transactions in the times ahead.”
What are circle rates and market rates?
Circle rate is the minimum rate at which a property is sold or transferred. This rate is fixed by the State government’s revenue department or the local authorities. There can be different circle rates for different localities within the same city. The intent behind setting these rates is to put a check on speculation of property rates.
Market rate, on the other hand, is the price at which the property is sold. It is derived based on the demand-supply dynamics in a given area and the seller’s expectations.
Here, it is crucial to note that the circle rates in a given locality can also be lower/higher than the market price of the property. A mismatch between the two can lead to increased stamp duty and deferment of property transactions.
How will the move impact real estate in Delhi?
The reduction in circle rates is a long-awaited decision that has eventually come as a breather for several property owners who could not liquidate their inventory due to the circle rates and market rates mismatch.
The decision will propel buying and selling activity in Delhi, especially in a few Grade-A micro-markets which otherwise were suffering from high circle rate and market rate discrepancies. Moreover, it is likely to bring down the cost of property transactions, especially in the mid-income and luxury segments. Areas such as New Friends Colony, Friends Colony, Vasant Vihar, Maharani Bagh, and Anand Niketan would immensely benefit from the reduction as the prevalent market rate in these areas is lower than the guidance value. Hence, the developers have been unable to slash prices over the years, fearing penalties from tax authorities.
Akshay Taneja, Director, TDI Infratech, in this context, avers, “At a time when real estate is on the road to recovery, decreasing the circle rates will indeed have a positive impact on the market. The sector is already facing immense pressure to contain the property prices because of increasing raw material costs. In this scenario, lower circle rate would be advantageous for the residential sector. The secondary market will witness more registeries as stamp duty and registration charges will come down.”
As per the experts, the 20 percent reduction in the circle rate would cut down the stamp duty and registration charges by around one percent.
While it is a temporary relief provided by the government, the move will indeed put pressure on the adjoining market of the National Capital Region (NCR). In such a scenario, it would be interesting to see whether the move will bring a new set of buyers to the market.
