Impact of Variation in Circle Rates on Property Prices

• @kw
• 16 Feb 2021

Circle rate has an impact on market price of property caused by effect in demand and supply in each area. Circle rates are reference point for property transaction prices. Whenever the circle rates are increased, the property prices also move up marginally. When market prices of property increase, government increases the circle rates to keep up with the upward movement of property prices. This helps government to earn more revenues. Government regularly monitor market prices and the circle rates can vary in the same city from location to location. Due to Covid-19 the pandemic there is fall in demand of property. The reduction in circle rate can trigger a price drop as buyers are unwilling to pay high prices. Lowering of circle rates can have a positive sentiment in the market clubbed with other factors such as implementation of real estate regulation Act. Due to this the prices of property will tend to go down further organically due to market forces. 

The prices of ongoing or under construction projects will not have significant impact on prices but it could have greater impact on upcoming projects as the builders will have to bear less costs that shall be passed on to the customers to get their project sold faster. The property prices have direct impact depending on the FAR- (floor area ratio), stamp duty and other transfer charges. Developers feel that the reduction in circle rate under present situation will improve the property market. In places where prevailing market rates are lower, a decrease in circle rates may not impact prices in the secondary market. The revised rates will surely reduce the gap between the market and circle rates and keep them in sync, thus helping the buyer and the seller to execute fairer deals.

Recently Delhi government has decided to reduce the circle rate by 20% across all categories for next six months to give relief to property buyers to improve the real estate market which was impacted by the COVID-19 pandemic situation. It is expected that due to this move by Delhi government the transaction volumes are expected to increase in property market. The Delhi government feels that the reduction in circle rate will help economy to recover from the contraction in post pandemic era and help in reducing financial burden on common man. 

In Gurugram the circle rate was reduced between 10 -15 % in the last financial year and once again the rate were reduced from 3 to 8% to make the property transaction more affordable. However, many property expert feel that the reduction in circle rate is going to make Gurugram as a sure winner but may much impact on adversely affect the other property market of NCR, like Noida and Ghaziabad.

The recent circle rate cuts have caused some property price decline in Gurugram over the past year. Though the circle rate cut are only impacting stamp duty payouts for buyers is a small portion of total acquisition costs. It may be seen that despite of reducing the circle rate the property prices are still on the higher side compared to other property markets. In Ghaziabad which is an upcoming property market with large numbers of projects coming up in residential and commercial sector has not seen any change in circle rates for last three years and market is waiting to see if it will follow the suite after Delhi and Gurugram.  

Under present situation property market is very uncertain and it will depend upon the circulation of money and enhancement in economic activities in the post pandemic era. The decision of Delhi Government will be seen as a proactive step by the chief Minister Shri Arvind Kejriwal and is yet to be seen how it will impact the property market in Delhi which is quite sluggish at present.