To boost the ailing realty sector and to bring down the extortionate property prices, the Delhi government announced a 20% cut in the circle rate of residential and commercial properties in Delhi.
A circle rate is a minimum value at which the property’s sale or transfer can occur. The 20% cut in circle rate will be applicable to all the categories for the next six months. However, the point of discussion is whether this cut will result in the reduction of property prices or not? Let’s look at what industry experts take on it.
“The market rate perception of the seller is always more than the circle rates. The benefit of price reduction in circle rates will not impact buyers, as the rates will gradually be adjusted to the sellers’ perception. The reduction in Delhi will not have much impact on real estate prices, apart from a meager benefit on stamp duty, which could be up to 1%. One of the biggest reasons is there is hardly any new inventory left in Delhi for investors. I am not considering one-two pockets of Dwarka, which is under approval. The cut in circle rates may also promote transactions in black money, which is prevalent in res-ale of properties,” says Honney Katiyal, Founder of Investors Clinic, in his statement to the Mint.
Interestingly, the real estate developers and consultants welcome the government’s decision as a positive move.
Mani Rangarajan, group COO, Housing.com, Makaan.com, and Proptiger.com, said the circle rates would directly bear actual market rates. And the 20% price cut in the circle rate will soften property and land prices in Delhi and simultaneously put pressure on other adjoining realty markets in NCR. Rangarajan said the decision would help bring in a new set of buyers to the market, and the reduction in prices may also lower the average age of property buyers. “Our younger buyers, especially single women who had to opt for more affordable property elsewhere, will now find it convenient to own a piece of the lucrative real estate market of Delhi,” he added.
Anuj Puri, Chairman, Anarock Property Consultants, said, “Considering the strong revival post lockdown easing, a reduction in circle rates augurs well for the market. Market rates, which are invariably higher than circle rates, are nevertheless influenced by them as they act as a floor price for any property transaction. Reducing circle rates, even for only a limited period, is great news for the Delhi housing market because it helps to bring down further property prices, which are very high despite not having risen for quite a long time”.
The real estate experts believe the move will increase property transactions, especially considering the Grade-A micro-markets, where there’s a mismatch between the circle rate and the market rate. Not just that, but the sellers in these areas were not able to reduce the price of the properties as it attracted a penalty from the income tax department.
In a recent statement, Anckur Srivasttava, GenReal Advisors, said, “It is a very proactive step. Will certainly improve the market sentiment and increase transaction volumes”.
Will a cut in circle rate lead to a reduction in property prices?
While some experts say the decision may reduce prices, others believe it is unlikely.
The realty sector experts believe that the move is likely to bring down the cost of property transactions, especially in luxury and the mid-segment.
Samantak Das, Chief Economist and Head of Research, JLL India, said, “However, more than price reduction fence-sitters in that segment will go ahead because they will have that confidence that they can convince the developer of price reduction. This correction will reflect the market dynamics”.