Will the 15% cut in circle rate revive Gurgaon realty market

The Haryana government has always been in the forefront whether it is spearheading the Affordable Housing initiative or understanding the market circumstance. By implementing a historic 15 percent slash in circle rate, the government has created a multiple beneficiary effect for consumers and builders in Gurgaon who were suffering due to real estate slowdown. A cut in commercial rate is perhaps seen for the first time. While we have seen steep hikes in circle rates, Delhi government did a 20 percent hike in 2012. Circle rate cuts rarely come by. [caption id=“attachment_2067845” align=“alignleft” width=“380”]  Reuters[/caption] Reflecting on the deep cut in the circle rate in Gurgaon, Vivek Agarwal, Co-founder and Principal Partner, Squareyards infers: “This step towards lowering circle rates should be seen in context with the affordable housing push by the government. In North India, Gurgaon leads in the affordable housing segment, with maximum launches happening in this space. The government has already taken a lot of measures to promote affordable housing and this seems to be one of them.” This is the first time in the past 10 years that the circle rates have been reduced. Otherwise, each successive year we have seen a rise of at least 10 percent. Last year, the rates were kept unchanged and rates applicable for 2014-2015 were carried over to 2015-2016. This circle rate reduction move is a calculated step by Gurgaon Deputy Commissioner T L Satyaprakash sending a boost up message to the real estate market. Gurgaon is a leading residential and commercial hub. In reality, the cut is an attempt to unlock the sluggish real estate market. This time the revision in circle rate was done to keep pace with market rates. Parveen Jain, President, NAREDCO & CMD, Tulip Infratech notes, “Earlier if the market rate was less and circle rate was quite high, then also the capital gain and the stamp duty had to be paid on prevailing circle rate only by which the buyers and sellers found themselves at a loss.” This time, both consumers and builders along with stakeholders will benefit from lowering of the circle rate as it applies to residential and commercial properties. Now, consumers and builders will be relieved from the burden of high capital gains tax, stamp duty and registration charges. It also gives an impetus to the resale market. The role of circle rate in real estate comes to light here. Circle Rates are a significant factor in pricing of real estate deals. Circle Rates are the rates set by the government at which a property can be sold. These rates become the minimum applicable rates as well. All stamp duty calculations have to take into account, the prevalent circle rates in the area. With this positive rate cut, the total cost of buying a property comes down. Thus, the lowered circle rate will make transactions more profitable for buyers and sellers in Gurgaon. The Haryana government has provided the highest relaxation in private colonies, HUDA sectors and other residential colonies coming under the older city. In plotting societies, there is a direct benefit to consumers. Suppose they had a 10 lakh property and they had to pay 7 percent stamp duty, around Rs 70,000, now, after the 15 percent circle rate cut, they would pay only around Rs 55,000. Signature Global, Co-Founder & Chairman, Pradeep Aggarwal sees this as rationalising of rates. “It will be the first time in recent history that Gurgaon, a premium real estate market, will see the circle rate graph downwards.” The circle rates for some prime residential areas like DLF Phase 1 and Sushant Lok will go down from Rs 77,000 per sq yard to Rs 65,450. Similarly, for DLF Phases 2, 4 and 5, it will fall from Rs 72,000 a sq yard to Rs 61,200. Apart from raising buyer sentiments which was on the downside, the circle rate cut by the Haryana govt sets a precedent for other state governments to follow if any meaningful change is desired on the real estate scene. Other state govts are likely to think over their prevailing circle rates and how it can be used as a tool to revive the market. Gurgaon will have a unique edge over other NCR regions where prices are going up and circle rates are being revised. Amidst this, Gurgaon will be seen in a much favourable position, says Vivek. Certainly, if consumers were to choose a region, they would prefer Gurgaon over others because of the lower overall cost of purchase of a property, which could be the deciding factor for most. Kumar Bharat, Director, BCC Infrastructures Pvt. Ltd, catering to the affordable market of Ghaziabad says, “This decision will push the UP government to cut circle rates in NCR cities of Noida and Ghaziabad. Noida market due to all the controversies has been seeing a slowdown as buyers are looking for other avenues for safe investment. With rate cut in Gurgaon, Noida will also have to follow suit to stay in this further skewed competition. Overall, we can say that circle rates for North Indian market is too high without any research on ground. This has to come down if governments want to see boost in the market sentiments in near feature.” The lowered circle rate in Gurgaon, which is implemented with immediate effect, is likely to generate demand for property and the market can now operate on a more realistic scale. With the mismatch between market rates and circle rates getting over in Gurgaon, now will it keep the bell ringing in the collector’s office for a good many real estate registrations happening in coming times and handsome revenues being amassed?