Lower circle rates reignite realty sector hope

Delhi plans to follow Gurgaon's example; experts welcome govt intervention in housing but warn periodical rate review might increase prices of projects in Noida

Around 250,000 residential properties in the Delhi-National Capital Region (NCR) have found no takers in the past one year. The slowdown in the housing sector has not only forced developers to slash prices and come up with new ways to boost sales, it has also prompted state governments to intervene.

The Haryana government has slashed circle rates — the minimum amount required to register a property — by 15 per cent in Gurgaon. Delhi is considering such a step. However, the Uttar Pradesh government is planning to raise this amount.

Circle rates are notified by the government and used as a reference point for stamp duty. Market rates are the prices at which sale-purchase transactions happen.

Last month, soon after Gurgaon had announced its new circle rates, the Delhi government said it might revise rates, following several complaints of high prices hurting the realty sector. Even the Opposition in the Delhi Assembly, the Bharatiya Janata Party (BJP), seemed to be on board with the plan. “There should be a review of circle rates,” Leader of Opposition in the Delhi Assembly Vijender Gupta told Business Standard. “Wherever the rates are high, these should be brought under control.”

Rohan Sharma, associate director, JLL India, said: “The past two-three years have been difficult for builders in areas such as south Delhi. Purchases in the builder-floor category have gone down drastically. Prices of properties have shot up due to high circle rates. In Noida, more than circle rates, there is a trust deficit among buyers. It makes sense for the authority to periodically review land rates, but that would mean developers would be forced to launch projects at a higher price.”

An official at the Municipal Corporation of Delhi said the minimum land price for residential use in Category-A areas such as Friends Colony was set at Rs 7.74 lakh a square metre. “It should be around Rs 4 lakh per square metre, which is closer to the current market rates in the area,” he said.

Experts said the move to bring down prices was to realign the market. “With the slowdown in the real estate sector, market rates in certain areas in Delhi have gone down,” said Rami Kaushal, managing director-consulting and valuations services, CBRE South Asia Pvt Ltd. “Circle rates were set according to these rates when demand was at its peak. A hike in circle rates does not necessarily lead to an increase in government collection. Hence, the government is trying to realign it.”

The Noida authority’s plan to increase the rates by up to 15 per cent might shift market focus to Gurgaon, said some experts. “This could have a positive effect on Gurgaon. Governments are realising it is important to re-energise the real estate market because about 200 ancillary industries are attached to it,” said Prashant Solomon, treasurer, Credai NCR.