The upward revision
of Delhi’s circle (Guideline) rates has created a furore of conjecture
in the real estate fraternity. This is understandable, but it is important to
understand what the real implications will be.
In fact, this
revision will not have any immediate impact.
Demand &
Supply..!
Property prices in
general are governed by market forces – namely demand & supply. Property
rates in Delhi NCR’s (National Capital Region) secondary market already surpass the existing circle
rates, and even the revised rates.
That said, upward
revision of circle rates has always resulted in a marginal increase in property
prices, so a nominal increase in rates in NCR’s secondary market over the
mid-term can not be ruled out.
 |
| Santhosh Kumar JLL India |
Circle rates are
basically the minimum valuation at which plot of land and immovable properties
in the city have to be registered with the Government.
The upward revision
in circle rates will certainly cause official property valuations to rise.
Property registration costs will increase as the minimum amount at which
property has to be registered (i.e. circle rates) has increased, along with the
correspondingly stamp duty payable on the registry amount.
The revised circle
rates will act as a deterrent to cash rich investors who have made the NCR real
estate market a speculative hunting ground. HNI’s (high networth individuals)
with larger financial appetites and stockpiled capital have been targeting this
market with the aim of achieving massive returns.
The revised circle rates across all property
categories will now encourage a proportionate infusion of accounted-for money
into real estate transactions.
Speculators..!
In other words, the
raised circle rates will prove to be a demotivating factor for investors who
have been playing the market basis their unaccounted money. Speculators will
moderate their aggressive approach because they will now be needed to shell out
a higher proportion of traceable funds, which they had earlier earmarked for
investment in other options.
However, the impact
on speculation will not be extremely significant, since only a very limited
number of transactions have happening in the upbeat colonies which are most
impacted by this move. In all other localities, the impact of the revised
circle rates will be moderate in capital terms, and within the financial
appetite of most investors.
It will definitely
encourage underwriters, big time investors and listed companies willing to
invest in NCR’s (National Capital Region) real estate market, because of the
resulting transparency. Major investors and big players prefer transparent
deals with minimal cash components, if any. It is only the smaller players and
unlisted companies & investors with large amounts of surplus cash who will
be negatively affected, as their ability to involve themselves in real estate
transaction on the strength of their unaccounted-for monies will reduce
significantly.
Reduce Black Money..!
In short, this step
will reduce black money in NCR’s realty deals. The region’s circle rates have
always been significantly lower than the prevalent market rates – a scenario
which allowed both end users and investors to absorb the cash over and above
the circle rates in any real estate transaction.
With the increased
circle rates, the magnitude of required traceable funds has also risen. Even
so, while the flow of unaccounted funds in realty deals will reduce, it will
not completely wipe out the use of black money in real estate transactions.
About the author..!
Mr. Santhosh Kumar is
CEO – Operations at Jones Lang LaSalle India
Santhosh KumarCEO – Operations
+91 124 460 5000
Email: santhosh.kumar@ap.jll.com
Src: Jones Lang
LaSalle India Real Estate Compass
Email:
localbusiness@ap.jll.com
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