How Circle Rates Impact Property Prices

Buying a home can be your personal decision but a number of factors decide the amount you will have to pay for your transaction. One such factor are circle rates. PropGuide tells you what circle rates are and how these impact your home purchase.

Circle rates

Simply put, circle rates refer to the minimum price at which a property can be sold in a particular area. These rates are determined by the state government and differ from area to area. This rate is used as a basis to determine registration and as stamp duty fee that are paid during the purchase of a property. Circle rates are revised on an annual basis.

Market rate

A market rate is the rate at which a property is sold according to the agreement between a buyer and a seller. Simply put, it is the average prevailing rate in a locality. This is generally much higher than circle rates of an area.

Bridging the gap

While market rates are a direct indication of a dynamic demand and supply scenario in the market, circle rates are tools used by the government to control the market.

In premium areas of Mumbai, for instance, market rates are 90 per cent higher than circle rates. In general, market rates are higher by at least 20-40 per cent.
On paper, transactions are under-valued to save on stamp duty and registration fee. The government's long-term objective is to reduce the gap between market rates and circle rates to cut down the unaccounted money transactions in the real estate sector.

The impact

When authorities increase circle rates (generally by 10-15 per cent annually), it has a marginal impact on prices. Circle rates actually affect market rates when they are not raised.

Recently, the Haryana government decided to keep the circle rates in Gurgaon unchanged. Prevailing market rates in Gurgaon have been either flat or showing marginal growth for the last two years. The state could not have kept the circle rates unaltered, if the market rates were climbing up rapidly.

Ear to the ground

Before investing in property, doing a thorough research on how circle rates have been behaving in the recent past will help you understand the future growth of a neighbourhood. Understanding the gap between market rates and circle rates is crucial, if you are investing exclusively for investment purpose.

(Katya Naidu has been working as a business journalist for the last nine years, and has covered beats across banking, pharma, healthcare, telecom, technology, power, infrastructure, shipping and commodities.)