Buying property in Delhi Set to be cheaper as Govt Cuts Circle Rate by 20%
On 5th February 2021, the Delhi government at a cabinet meeting decided to slash the circle rate by 20% for residential, commercial, and industrial properties in Delhi for six months as part of efforts to relieve the real estate sector that hit severely by the COVID-19 pandemic.
Delhi has roughly eight people from A to H category, the most affluent and the most economically weak. Circle rates are proportional. For example, in the A category area, the circle rate for residential property so far was Rs 7,74,000/sqm and in H category areas it was Rs 23,280/sqm. After the revised circle rate, it will come down to Rs 6.19 lakh/sqm as per the PTI report. In the ‘H’ category, the circle rate will be reduced from Rs 23,280 to Rs 18,624/sqm.
Now people willing to buy houses in posh areas of Delhi like Vasant Kunj and Gold Link will have to pay less than Rs 1.5 lakh/sqm.
The minimum construction cost of commercial properties will also be reduced from Rs 25,200/sqm to 20,160/sqm in ‘A’ category areas. In ‘H’ category areas it will be reduced from Rs 3,960.sqm to Rs 3.168/sqm.\
The minimum rate of flats (per square meter) constructed in buildings over four storeys will be reduced from Rs 87,840 to Rs 78,272.
What is Circle Rate?
Circle rate is the minimum specified value per square meter or sq ft for land or property fixed for a certain category of locality at which the transaction is to be registered. This varies with each state and is periodically revised based on demand, supply, and other development indicators related to the respective region.
The new circle rates will remain in force till September 30 of this year. After the cuts, the government hopes to increase revenue collection as it tries to reverse the devastating effects of the COVID-19 epidemic.
How will this affect property transactions in Delhi?
Real estate experts said that the move is expected to improve market sentiment and increase the volume of property transactions. A 20% reduction in circle rates is expected to result in a 1% reduction in stamp duty or registration fees, The decision is also expected to make property substantially cheaper and will boost revenue for the government. At the same time, it will create new job opportunities and will support returning migrants to their workplace.
Property transactions will occur exclusively in Grade A micro-markets where there is a mismatch between the circle rate and the market rate. Furthermore, sellers of these areas were unable to reduce prices as it attracted penalties from the Income Tax Department. At the same time, this will help sellers in areas such as New Friends Colony, Maharani Bagh, Anand Niketan, Vasant Vihar, and Friends Colony where the market rate is lower than the circle rate.
Will this move reduce property prices in Delhi?
Experts believe that this decision is likely to reduce the cost of property transactions, especially the middle and luxury segments due to a mismatch between the market price and circle rates. Right now the market rate is lower than the circle rate in some premium markets. Now developers will also have to reduce price as circle rate was earlier a limiting factor.
The revised circle rate should reflect the market rate. Earlier, the buyer had to pay a higher stamp duty than the value of the house which caused a negative sentiment. Now the total price will be reduced as the stamp duty registration will be reduced to that extent.
Which real estate sectors will benefit the most, residential or commercial?
This step can define the pathway of Delhi’s real estate recovery. Since this is only for Delhi, we see more residential real estate benefiting from commercial/retail or industrial.
Data source: Google, Image Source: IndianExpress
