To check the use of unaccounted money in real estate and stop speculation in property prices, local governments revise circle and land rates falling under their jurisdiction
To check the use of unaccounted money in real estate and stop speculation in property prices, local governments revise circle and land rates falling under their jurisdiction. Such revisions always have an adverse affect on general property rates in the area.
What is circle rate?
Circle rate is the minimum rate defined by all state governments at which a property can be bought or sold. Circle rates put a check on speculation of property prices. Within a state, there are different circle rates for different cities and within a city, circle rates vary according to the locality. For example, circle rates in Delhi are now in the range of Rs. 9,000 per sq. m, the lowest in the city, to Rs. 1.25 lakh per sq. m. The earlier range was Rs. 6,900-43,000 per sq. m. In the opaque real estate market and absence of an accurate price index, circle rates provide a basis for pricing. Similarly, basic reserve land rates are prescribed for each locality.
Why are rates revised?
Any housing board or a development authority in a city that reviews the functioning of the property market can revise these rates. Properties in the resale market are often sold on the published market rate. But there is always a component of cash involved that is used over and above the published rate. Thus the actual value of a property is often higher than the published rate. To reduce the gap between the published rate and the actual rate, government revises the circle rate.
How does it impact property market?
While the revision helps the government to increase revenue and check the flow of unaccounted money, it also translates into higher property prices. Property owners who want to sell property after the revision benefit from the change. A seller can then increase the property value on the basis of higher circle rates.
A revision also affects the calculation of a developer or the builder. For him, the land cost increases as per the circle rate. This, in turn, increases the acquisition cost for developers, who would increase the price of apartments to recover costs.
What can you do?
If you are a prospective buyer in an apartment project or planning to buy property in resale, take the decision fast before the seller increases rates. Sometimes, the government after announcing the increase in circle rates gives a date from when the new rates would be applicable. It is in your favour to negotiate over the property rate before this change.
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