With cities rapidly transforming into vibrant urban centers, rising property prices have become a major concern for potential homebuyers.
One such example is Noida, where homebuyers are bracing for a proposed 25% hike in circle rates. The increase, meant to reflect the city’s rapid development, could significantly raise the cost of property transactions, forcing many to reconsider their plans.
Understanding the concept of circle rates, and how they influence property valuations, has become critical for anyone navigating the real estate market.
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What are circle rates?
Circle rates, also known as ready reckoner rates, are the government-determined minimum values for properties in specific locations.
These rates serve as the baseline for property valuation, influencing how stamp duty, property taxes, and transaction costs are calculated. According to Aman Gupta, Director at RPS Group, “Circle rates refer to the minimum values fixed by a government with respect to property registration in certain areas. They are sort of an official ‘price floor’ for real estate transactions.”
These rates are periodically reviewed and updated by local governments to reflect current market conditions, ensuring property transactions remain aligned with the area’s economic activity. Essentially, they help standardise real estate deals, preventing gross underpricing or overpricing of properties.
Are circle rates different across cities?
Yes, circle rates vary significantly, not only between cities but also within different areas of a single city.
“Circle rates differ as much as cities themselves do. For instance, the posh areas of South Delhi will have a much higher circle rate than the developing outskirts of the city,” says Gupta.
Renuka Kulkarni, Head of Research at Square Yards, adds, “Circle rates vary between cities. For example, the rates in Delhi will differ from those in Mumbai or Bengaluru, depending on location and local market demand. In fact, they don’t just vary between cities but also within them.”
This regional variation is critical to understand, especially when comparing property values across locations, as it plays a significant role in determining the final cost of a transaction.
How are circle rates decided?
The process of determining circle rates involves several factors. Ashok Chhajer, CMD of Arihant Superstructures, explains, “Circle rates, or ready reckoner rates, are the government-assigned minimum property values used to calculate stamp duty and registration fees. These rates vary across cities and even within different localities based on factors like infrastructure development and real estate demand.”
Local authorities, often from the revenue department, evaluate the location, type of property (residential, commercial, or industrial), nearby amenities, recent sales, and the general health of the real estate market to set these rates.
The complex process ensures that the rates reflect current market trends and prevent property undervaluation.
Why are circle rates important?
Circle rates are essential in maintaining transparency in real estate transactions and preventing tax evasion.
“Circle rates are important for several reasons in the real estate sector,” says Gunjan Goel, Director at Goel Ganga Developments. “They prevent undervaluation of property and consequent avoidance of taxes on the deal. They act as a reference point for valuation, particularly for first-time buyers.”
For financial institutions, circle rates help establish a benchmark for determining the loan amount against a property.
They are also used to calculate stamp duty and registration charges during the sale or transfer of property.
As Goel explains, “Banks and financial institutions use such rates to decide how much they can lend you for that dream home.”
How do circle rates affect buyers and sellers?
The impact of circle rates on both buyers and sellers is substantial. For buyers, higher circle rates mean higher stamp duty, which increases their total outlay.
For sellers, these rates ensure that the property isn’t undervalued, which could attract tax scrutiny.
“If a property’s market value is Rs 1 crore but the circle rate is Rs 1.2 crore, the buyer will have to pay stamp duty on the higher amount, affecting their total outlay,” says Chhajer.
Goel provides a more detailed example: “Suppose the circle rate for a property is Rs 50 lakh, whereas the market value is Rs 60 lakh. The purchaser will have to pay higher stamp duty on Rs 60 lakh and can avail of home loans based on that valuation. For the vendor, selling at Rs 60 lakh poses no issue. But selling below the circle rate, say at Rs 45 lakh, may lead to tax scrutiny, and the buyer will still need to pay stamp duty on Rs 50 lakh.”
Balancing act for the real estate market
In rapidly developing areas, where infrastructure growth is pushing up property demand, circle rates tend to rise to reflect these changes.
As Piyush Lohia, Director at Lohia Worldspace, points out, “Circle rates matter immensely for buyers and sellers because they serve as a baseline for property valuations. They act as a safeguard against undervaluation and help ensure fair market practices.”
