New Delhi: Even as the Uttar Pradesh administration raised real estate circle rates for Noida, Greater Noida and the Yamuna Expressway by 10-25 percent on 23 August, the impact it has on buyers will be limited.
The circle rate are fixed by the government to prevent buyers and sellers from paying less stamp duty by showing very low values of property deals.
While the transactional cost of a property may increase, property prices may or may not increase. This is because a person who has already bought a house or a plot does not have to pay more or the difference in value for the already purchased property. The only extra expense incurred by the purchaser will be the cost of stamp duty. For example, if a buyer paid a registration and stamp duty charge of Rs 66,500 per sq metre for residential plots in 'category A' (public) sectors after the previous circle rate hike on 18 July, they will now have to pay Rs 70,000 per square metre for the same.
"Overall an increase in the stamp duty will increase transactional costs but I don't see it increasing property prices to that extent," Mudassir Zaidi, regional director (north), Knight Frank (global property transactional, management and advisory services), told Firstpost.
Zaidi also said that increasing circle costs does not necessarily mean increasing the property value in the market. "Circle rates follow what is happening in the markets - mostly what's already happening in the market. The only impact will be that the cost of stamp duty will go up," he said.
However, Zaidi says there will be one good impact of the rate hike. Since the minimum rate at which a property can be bought and sold will increase and stamp duty charges will also be higher, it could bring in more transparency in transactions. "The overall value of cash (black money) involved will decrease and more transparency and accountability will be introduced to purchases," he said.
Gaurav Pandey, head, Research & Consulting at PropEquity, a property research and consulting firm, agrees that in the case of projects that were launched earlier, the impact would be limited. What it would affect though are the region's capital values. "The increased circle rates would impact capital values for future new projects in Noida and Greater Noida region. This increase will also effectively assist in reducing the difference between market value and circle rate," he told Firstpost.
Greater Noida Masterplan 2021 will bolster rates and sales in region
Meanwhile, realty watchers in the NCR region said that the approval of the Greater Noida Master Plan 2021 by the NCR Planning board on 25 August will act as a catalyst to boost in property prices in the Noida region.
"Approval of the Master Plan provides impetus to the development pace of the city and future residential projects in Greater Noida would be launched at marginally higher capital values vis--vis year 2011," said Pandey of PropEquity.
Sachin Gulaty, head - valuations (strategic consulting), Jones Lang LaSalle India, said that the approval of the plan by the NCRPB gives the region's projects some legitimacy and will hence have a positive impact on property prices.
"Approval of the Greater Noida Master Plan 2021 is likely to have a positive impact on the Greater Noida market. This is because this accords a sense of validity to the developments there and consequently instils confidence about their legality," Gulaty said, adding, "It will also give rise to a degree of competition, and consequently price pressures, to the Noida real estate market."
Govt updating circle rates will generate more revenue
Knight Frank's Zaidi says that while the government could have given a longer break between increasing the circle rate in Noida - which was last increased on 18 July and now on 23 August - they were already contemplating the increase.
"Maybe the only reason for the government to introduce the hikes in this manner was to soften the impact of the hike," he said.
Gaurav Pandey of PropEquity says that the purpose of the increase in circle rates is primarily to keep them in line with increasing market values and to reduce the cash component in property transactions.
"Across Indian cities, the increase in circle rates is primarily related to upward movement of market prices. Noida region has witnessed strong northwards movement in market prices in recent times, which could have resulted in consecutive increase in circle rate in Noida," Pandey said.
The increase in circle rate will also enable the government to fill its coffers some more.
"The government is making efforts to align and update market rates with circle rates to enable a higher revenue collections through stamp duty, which is based on either transaction value or circle rates (whichever is higher)," said Gulaty of Jones Lang LaSalle India.
Moreover, given that there is usually a period during which circle rates remain constant, and also factoring in the relatively higher sensitivity of market rates to externalities, circle rates may at times be unable to keep pace with market rates. It is to account for this dynamic nature of real estate market prices that circle rates are revised periodically.
In the latest circle rate hike, rates for residential plots have been raised by 10 to 25 percent, those for group housing plots have been hiked by 12 to 70 percent; that for institutional and commercial properties has been revised by around 10 percent and for the industrial sector, it is up by 12.5 percent.