Noida real estate experts warn against hiking circle rates

July 29, 2016 12:00 am | Updated 08:48 am IST - NEW DELHI:

Despite the district administration in Noida assuring that the proposed circle rates are not going to have any impact on 95 per cent of property registrations in the region, real estate experts are far from convinced.

The increased circle rates along with the proposed hike in stamp duty, from five per cent to seven per cent, is bound to aggravate the negative sentiment among buyers in the already sluggish real estate market of Noida, say experts.

Doing the opposite

Developers rue that the Uttar Pradesh government’s proposal to increase circle rates — ranging from 15 per cent to 25 per cent — is in contrast to what has been recently witnessed in Gurgaon and is also being currently evaluated in the Capital.

Circle rates

In areas like Noida, the existing market rates are lower than the circle rates. Market participants fear that in such a situation any further increase in circle rates may only worsen the health of the real estate sector.

Circle rate is the minimum rate at which a transfer or registration of a property takes place and the government earns revenue by levying stamp duty on the registration value.

Buyers will pay

According to rating agency, ICRA, the suggested increase in both the minimum circle rates and the stamp duty is set to increase the cost of acquisition for the buyers. For residential properties, the hike proposed is up to 15 per cent while circle rates for institutional properties have been proposed to be increased by up to 25 per cent.

The UP government’s proposal was open for public opinion until Monday and now a meeting is scheduled this week where a final call on the circle rates will be taken.

Speaking to The Hindu , Manoj Gaur, president of Confederation of Real Estate Developers’ Associations of India (CREDAI)-NCR, said: “We are going to attend the meeting where our demand shall not only be to drop this proposal, but to reduce the existing circle rates by 25 per cent. We have enough data to show that property transactions are not happening under the existing circle rates itself. Now if they plan to increase it further, transparency will go for a toss.”

Explaining its impact on the real estate sector in Noida, Shubham Jain, vice-president of ICRA, said: “The proposal to increase the circle rates as well as the stamp duty in Noida will be a negative for the Noida developers. Market participants are already facing liquidity constraints with slowing sales velocity and consequent increase in pressure on their cash flows. Such a move that increases the cost of acquisition may result in further delay in the purchasing decision of the buyer. In addition, neighbouring cities like Gurgaon may benefit where circle rates have been reduced recently.”

Rejecting the claims made by District Magistrate N.P. Singh that the increased rates wouldn’t affect more than five per cent of the total number of new registrations in premium regions, Mr. Gaur said that it would certainly have a negative impact on developers.

“For a developer, a lot of other payments like purchasable Floor Area Ratio and other extra charges depend on the circle rates. So, if it is increased they will have to shell out more which would automatically result in unnecessary spike in cost of dwelling units for a buyer,” he said.

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