Shares of Delhi-based real estate developers DLF and Unitech fell by 3% to 3.05% at 11:38 IST on BSE after the Delhi government reportedly announced upto 20% increase in circle rates effective Tuesday, 23 September 2014.
Unitech (down 3.05%) and DLF (down 3%), edged lower.
The S&P BSE Sensex was down 59.43 points, or 0.22% at 27,147.31.
According to media reports, circle rates are minimum rates below which a property cannot be registered and forms the basis of stamp duty and registration charges for a property. Circle rates, introduced in 2007, are revised periodically. In Delhi, these rates were last revised in November 2012, when the rates were hiked by 200%.
Most property transactions in India are opaque, with some black money component. Many times, actual transactions take place much above the government's prescribed rates. There are many instances when buyers are forced to register the property at government's prescribed prices (circle rate), but have to fork out additional cash to compensate for the actual transaction value, reports suggested.
In good times, a hike in circle rates generally leads to some increase in property prices as well. But considering the sluggishness in real estate, particularly in Delhi, the hike in circle rates will only result in higher revenues for the government and is unlikely to have significant impact on prevailing property prices, reports said.
Meanwhile, shares of DLF also fell as a foreign brokerage downgraded the stock to 'reduce' from 'hold', citing limited upside potential for shares and no major potential catalysts in the near-term. The brokerage also highlighted DLF's weak operational data and negative newsflow from ongoing legal cases.
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