Will circle rate reduction in Gurgaon impact prices?

Lately we are hearing a lot of buzz about Gurgaon's circle rate being reduced by 15% across all asset classes. Generally, it is an yearly affair where most of the state governments revise (increase in most cases) the circle rates. But in Gurgaon, the circle rates were stagnant for the last two years.

Rationally, the circle rates are adjusted to reduce the gap between the ‘going market rate’ at which transactions are taking place and the government prescribed minimum value for registration of properties. The reduction in circle rate has been done in the wake of lower transaction volumes in real estate sector in last two years.

Circle rate is the minimum rate at which the sale or transfer of a plot, built-up house, apartment or a commercial property can be registered. These rates form the basis of stamp duty and registration charge calculation for a property. 

A 15% reduction on per sq ft basis will eventually reduce the stamp duty paid to the state government and help revive the market among all asset classes.

However, there is another logical problem with the circle rates system which needs to be addressed to further rationalise the prices. Location categories formulated by the government cover large areas that thus do not account for the substantial variance in prices within each of the area categories. For example, according to the recent document the circle rate for Corporative Group Housing societies in all sectors has been reduced from INR 3,600 per sq ft to 3,060 per sq ft. However, the actual market rates are ranging anywhere between INR 3,000 to 10,000 per sq ft in Gurgaon. Hence, there are locations where the circle rate is higher than the market rate and some locations these are lower than the market rates. In such areas if transaction does take place, the buyer pays a registry charge that is either more or less than what he ought to pay given the actual transaction value.

Having said that, it is a definitely a good move and will help revive the real estate in Gurgaon. It shows the state government’s inclination to offload some pressure from the sector. 

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