The Finance Minister’s move to increase the differential between circle rates and agreement value — from 10 per cent to 20 per cent for homes up to Rs 2 crore — is unlikely to have any major impact in Mumbai and Delhi-NCR as majority of houses are above Rs 2 crore in the country’s two largest property markets, top developers said.
Earlier, if the difference between circle rate and agreement value exceeded 10 per cent, it was treated as income and, hence, taxed. The new relaxation is allowed till June 30, 2021.
“It won’t have a big impact in big cities such as Mumbai and Delhi. But in Tier1 and 2 cities where prices are in the range of Rs 65 lakh to Rs 1 crore, there will be an impact,” said Rajiv Talwar, chief executive at DLF, the largest listed developer. Niranjan Hiranandani, MD Hiranandani Communitiesm said the Rs 2-crore cap was a problem. “Though it would help in smaller cities, they should remove the Rs 2 crore cap. They should apply it to commercial real estate also,” Hiranandani said. Keki Mistry, vice chairman and CEO of HDFC, said there should not be any ceiling. “The market prices have fallen across segments including affordable and luxury. In place like central and south Mumbai where property values are above Rs 2 crore, prices have fallen much more. The benefit to high-value residential premises would increase effectiveness of step,” Mistry said. Earlier in the day, FM Nirmala Sitharaman said: “A lot of inventory will get cleared and buyers will pay less tax on differential between circle rates and agreement value.”
She said the move would help middle class which wants to buy when there is “supply side boom” and inventories are building up. “For homebuyers, it is a clear added financial benefit to round off the existing offers and discounts. Additionally, the consequential relief up to 20 per cent to buyers of these units for the said period will definitely boost demand, especially in the affordable and mid segments,” said Anuj Puri, chairman, Anarock Property Consultants. According to Anarock Research, there are around 545,000 unsold units across the top 7 cities priced up to Rs 1.5 crore while another 49,290 units priced between Rs 1.5 crore and Rs 2.5 crore.
Developers in Bengaluru cheered the announcement.
“This (relaxation) will give a lot of ease for sales. And good thing is that it is only for first sale only,” said Irfan Razack, chairman at Prestige Estates Projects, a Bengaluru-based developer.
The FM also announced an additional outlay of Rs 18,000 crore for PM Awas Yojana (PMAY – Urban) which is over and above Rs 8,000 crores already spent this year. It will help 1,200,000 houses to be grounded and 1,800,000 houses to be completed.
“This will help bridge the housing gap in the country to a good extent and is simultaneously an excellent economic growth driver by creating more employment,” Puri said. As of August, 10.6 million homes had already been sanctioned in the country, of which 33 per cent or around 3.5 million homes are completed while another 6.6 million units have been grounded for construction.
Sitharaman also announced a new Emergency Credit Line Guarantee Scheme (ECLGS) 2.0, which will cover the mid-sized companies in the 26 stressed sectors which includes real estate. However, the real estate stocks did not respond much to FM’s announcements.BSE Realty Index closed the day at 1884.1, about 0.8 per cent higher than Wednesday’s close. DLF, the country’s largest developer, ended at Rs 182.6, 0.2 per cent lower than previous close.
(With inputs from Abhijit Lele)