Hike in circle rates in Maharashtra could dampen residential demand

In a bid to boost the real estate market in Maharashtra, the State Government had reduced stamp duty to 2 per cent (from 5 per cent) a few weeks back. However, in an unexpected turn, the Government of Maharashtra now increased the circle rate of properties by 1.74 per cent on an average across the state. This could, to an extent, offset the benefits of stamp duty reduction. At a time when the demand for house property has not picked up due to income uncertainties on account of the Covid-19-led-slowdown in the economy, hike in circle rates, especially in Mumbai, could impact sales for developers going ahead.

Circle rate is the minimum designated rate or price per square feet of land or property fixed for a locality, by the State Government, at which transactions have to be registered. This rate is also described as guideline value or ready-reckoner rate. The rate varies with state to state and is revised from time to time depending on demand, supply and development of the area.

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The circle rates in some regions including Thane, Navi-Mumbai and Raigad, has been increased between 1.42 and 3 per cent. However, in certain regions, the State Government has reduced the circle rates by 0.6 per cent.

Impact

The recent increase in circle rates could dampen the sentiment towards purchase of house property. This is because the stamp duty is paid either on circle rate or market/agreement value, whichever is higher. Let us understand the impact of the increase in circle rates. Say, you purchase a property at the circle rate. The cost of the property is working to be ₹80 lakh, the stamp duty of 2 per cent is payable on this amount, which works out to ₹1.6 lakh. Now, in your region, the hike in circle rate is 2 per cent, which means, you will pay stamp duty of 2 per cent on ₹81.6 lakh, which works out to ₹1,63,200.

According to Samantak Das, Chief Economist and Executive Director - Research & REIS, JLL, India, “While the government had taken a welcome step by reducing the stamp duty rates last month, the hike in ready-reckoner rates acts as a sentiment dampener.” Das further adds that this increase in rates (though not significantly high) is not warranted in the current market conditions when demand is yet to rise. He says, “It could have been delayed.”

Read also: What should home buyers know about stamp duty and registration charges?

At a time when prices in most regions in Maharashtra have remained more or less stagnant, at around ₹6,800 per sq ft (average), hike in circle rates could affect sales for developers as well.

Some developers including Godrej Properties and Sunteck Realty have announced 10:90 schemes for their on-going projects — where home buyers have to pay 10 per cent as down payment and the remaining 90 per cent is payable at the time of possession of the property. Samantak Das says, “At a time when the market is conducive for demand to pick-up — in terms of low interest rates, reduction in stamp duty, and offers by developers — hike in circle rates is not a pragmatic approach for both developers and home buyers.”