Understanding Circle Rates
We often come across terms such as Circle Rates or guidance values. But ever wondered what circle rates actually are? And how these rates affect property prices?
Circle rate is the minimum rate for property or assets (plots, independent houses, flats) in a particular area/locality. A realtor understands circle rates as the minimum value at which the property can be registered.
But to understand circle rates, we should observe the connection between circle rates and market rates. While a market rate is the practical transaction value determined by the market forces driven by the demand and supply, circle rates are finalised autonomously by the revenue ministry considering the available infrastructure and other parameters.
Who sets the circle rates? Well, circle rates are set by the state government’s revenue department or local development authorities. It also determines the stamp duty charges and the registration charges to be incurred in property transactions.
Impact on Property Prices
In a property transaction, the buyer bears the burden of additional charges that includes stamp duty charges and registration charges. Thus, increasing circle rates indirectly control the property prices as more stamp duty & registration charges are to be paid by the buyers.
Usually the circle rates are far lower than the present market values and thus experience a hike when are intended to update by the state government. Thus, circle rate revision blindly gives positive inclination for property prices though reduces the transaction volumes slightly.
Though the concept of circle rates or guidance values benefits include buyer security or market rationality, that however could be achieved only when these values are up to date confirming with the latest market values in respective localities. That explains the circle rates are set far from practical rates defying the reality due to irregular revision by the state governments.
Obsolete circle rates cannot ensure proper paperwork with actual transaction value leaving a loophole in the concept, which is often exploited by the realtors resulting in significant fiscal loss to the exchequer of the government.
Prior to the year 2013, circle rates were updated every couple of years, while post 2013, they are reviewed on a yearly basis as per the new government norms.
Looking at circle rates in Delhi, Municipal Corporation of Delhi (MCD) has categorised eight (A-H) categories of colonies in Delhi. Based on property taxation zones, different circle rates are assigned to each category as in table below. Last revision of circle rates were in the year 2012, which came into effect from Dec 05, 2012.
Category A Colonies – Rs. 6,45,000 per Square Meter
Category B Colonies – Rs. 2,04,600 per Square Meter
Category C Colonies – Rs. 1,31,040 per Square Meter
Category D Colonies – Rs. 1,06,384 per Square Meter
Category E Colonies – Rs. 58,316 per Square Meter
Category F Colonies – Rs. 47,141 per Square Meter
Category G Colonies – Rs. 37,820 per Square Meter
Category H Colonies – Rs. 19,361 per Square Meter
With the increasing gap between market rate and circle rate, it is actually increasing black money transactions in the real estate market. Thus, ensuring the regular adaptation of the circle rates with the market values is imperative. Once in place, it will have positive inferences like efficient treasury collection for the state or local governments, which could further be used for infrastructure development.
