Factor in prop­erty pro­files be­fore hik­ing cir­cle rates

Blan­ket es­ca­la­tion in Delhi zones has led to a huge gap be­tween cir­cle and mar­ket rates

HT Estates - - HTESTATES - An­shu­man Mag­a­zine

The move to in­crease cir­cle rates in Delhi by 20% across the board last year will have an im­pact on in­vestor sen­ti­ment in the Cap­i­tal, es­pe­cially on prop­erty sales. Cir­cle rates are the gov­ern­ment’s es­ti­mates of mar­ket val­ues on which it bases all prop­erty taxes and du­ties. This prac­tice of the gov­ern­ment hav­ing to es­ti­mate mar­ket val­ues of prop­er­ties is unique in it­self, be­ing limited to a few emerg­ing economies alone.

In an en­vi­ron­ment of opaque mar­ket ac­tiv­ity — es­pe­cially when a sig­nif­i­cant amount of un­ac­counted money is parked in real es­tate as­sets — such a move helps re­duce money laun­der­ing and spec­u­la­tion in the sec­tor, in­creas­ing the pro­por­tion of end-user home­buy­ers. In the long run, a re­duced gap be­tween cir­cle and mar­ket rates works to­wards ra­tio­nal­is­ing prop­erty prices; while higher tax rev­enue from realty trans­ac­tions spells a wider avail­abil­ity of funds for in­fra­struc­ture de­vel­op­ment.

Viewed from this per­spec­tive, the cir­cle rate hike in the Cap­i­tal may not have been an en­tirely neg­a­tive de­vel­op­ment. The ground re­al­ity, how­ever, is that the flat 20% hike has im­pacted res­i­den­tial real es­tate in­vest­ments in the city, es­pe­cially for ar­eas where the cir­cle rate ex­ceeds the pre­vail­ing mar­ket rate by a sig­nif­i­cant mar­gin. My view is that while we recog­nise the need and use­ful­ness of a cir­cle rate rise in the city, we also be­lieve that it should have been com­men­su­rate with the prop­erty pro­files of each zone in­stead of a blan­ket es­ca­la­tion. The fi­nal de­ci­sion should have been made in con­sul­ta­tion with the city’s town plan­ning ex­perts who are aware of the real es­tate nu­ances of each mi­cro-mar­ket.

The down­side of this de­ci­sion from the Delhi gov­ern­ment is that var­i­ous lo­cal­i­ties that should have been in­cluded un­der cat­e­gory B (where rates have been hiked to ₹ 2.04 lakh/sq m) have been clubbed un­der cat­e­gory A (where cir­cle rates stand at ₹ 7.74 lakh/sq m. The re­sult is a nearly 300% gap be­tween the cir­cle rate and the mar­ket rate. Neigh­bour­hoods that could have been placed un­der cat­e­gory A have been placed in cat­e­gory B, hence in­creas­ing the gap be­tween go­ing mar­ket rates and the cir­cle rate — de­feat­ing the core pur­pose of this pol­icy change.

This dis­crep­ancy has kept off home­buy­ers from in­vest­ing in many of Delhi’s neigh­bour­hoods, where cir­cle rates have ex­ceeded the go­ing mar­ket rates, mak­ing in­vest­ments un­fea­si­ble for small and mid-mar­ket play­ers. Apart from pay­ing higher stamp du­ties, home­buy­ers may also run the risk of com­ing un­der higher prop­erty tax im­pli­ca­tions as a re­sult of this rise in cir­cle rates.

While such a sce­nario may re­sult in ra­tio­nal­is­ing prop­erty prices in Delhi in the long term, it may also drive home buy­ers from the Cap­i­tal into the neigh­bor­ing real es­tate mar­kets of Gur­gaon and Noida.


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