The impact of revised circle rates in Delhi NCR

By: Karshni on 02:46

Santhosh Kumar

CEO - Operations,
Jones Lang LaSalle India

The upward revision of Delhi's circle rates has created a furore of conjecture in the real estate fraternity. This is understandable, but it is important to understand what the real implications will be. In fact, this revision will not have any immediate impact. Property prices in general are governed by market forces - namely demand and supply. Property rates in Delhi NCR's secondary market already surpass the existing circle rates, and even the revised rates. That said, upward revision of circle rates has always resulted in a marginal increase in property prices, so a nominal increase in rates in NCR's secondary market over the mid-term cannot be ruled out.

Circle rates are basically the minimum valuation at which land and immovable properties in the city have to be registered with the Government. The upward revision in circle rates will certainly cause official property valuations to rise. Property registration costs will increase as the minimum amount at which property has to be registered (i.e. circle rates) has increased, along with the correspondingly stamp duty payable on the registry amount.

The revised circle rates will act as a deterrent to cash-rich investors who have made the NCR realty market a speculative hunting ground. HNI's with larger financial appetites and stockpiled capital have been targeting this market with the aim of achieving massive returns. The revised circle rates across all property categories will now encourage a proportionate infusion of accounted-for money into real estate transactions.

In other words, the raised circle rates will prove to be a demotivating factor for investors who have been playing the market basis their unaccounted money. Speculators will moderate their aggressive approach because they will now be needed to shell out a higher proportion of traceable funds, which they had earlier earmarked for investment in other options. However, the impact on speculation will not be extremely significant, since only a very limited number of transactions have happening in the upbeat colonies which are most impacted by this move. In all other localities, the impact of the revised circle rates will be moderate in capital terms, and within the financial appetite of most investors.

It will definitely encourage underwriters, big-time investors and listed companies willing to invest in NCR's real estate market, because of the resulting transparency. Major investors and big players prefer transparent deals with minimal cash components, if any. It is only the smaller players and unlisted companies and investors with large amounts of surplus cash who will be negatively affected, as their ability to involve themselves in realty transaction on the strength of their unaccounted-for monies will reduce significantly.

In short, this step will reduce black money in NCR's realty deals. The region's circle rates have always been significantly lower than the prevalent market rates - a scenario which allowed both end users and investors to absorb the cash over and above the circle rates in any realty transaction. With the increased circle rates, the magnitude of required traceable funds has also risen. Even so, while the flow of unaccounted funds in realty deals will reduce, it will not completely wipe out the use of black money in real estate transactions.

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