Explained: How the increase in circle rates will impact the property market in Noida and Greater Noida

The administration has proposed to bring the circle rates, which are used to calculate the stamp duty on property transactions, on par with market prices and impose an additional surcharge of 5 percent to 12.5 percent on properties along the Metro route or near the expressway.

Officials say that so far this is only a proposal and objections have been invited from the public. Stakeholders, who include buyers and builders, have been given time until August 16 to file objections if any against the proposal. If the objections are reasonable they would be considered and the rule amended accordingly. The final call rests with the collector.

The current stamp duty is around 6 percent of the property cost, which, in turn, is influenced by the circle rates prevalent in the area.

How will property transactions in Noida, Greater Noida and along the Yamuna Expressway be impacted?

The decision is expected to make property transactions "substantially expensive" for people and affect the revival of the real estate sector, which has been hit severely by the coronavirus pandemic.

In Noida’s category A sectors, such as 14A, 15 A and 44, the circle rate is proposed to be Rs 1,94,250 per sq. m against the existing 1,03,500 per sq. m, which is a hike of more than 85 percent hike after four years.

Category B sectors include 11, 12, 22, 70, 71, 72, 73, 74, 75, 76, 77 and 78. Most housing societies are located in these sectors, and the rate proposed for them is Rs 72,000 per sq. m. The current rate in these areas is Rs 52,500 per sq. m. This is an increase of over 35 percent.

Why has the Gautam Budh Nagar stamp and registration department proposed to hike circle rates now?

The department wants to match the circle rate with the allotment rate. The Yamuna Expressway Industrial Authority had increased the land allotment rate by 5 percent two months ago; the Greater Noida Authority had hiked its rates by 4.5 percent in June. The Noida Authority has also increased the allotment rates by almost 20 percent in some sectors.

The department has also linked the stamp duty to the distance from infrastructure such as the metro and expressway. As per the proposal, if the plot of the housing society is located on a 30-metre-wide road along a metro corridor or the expressway, the property will attract an additional 5 percent to 12.5 percent duty additionally.

The administration has proposed an additional surcharge of 5 percent on properties along the metro route and near metro stations, 7.5 percent additional surcharge on sectors that lie on both sides of the expressway and 12.5 percent on sectors close to the metro station and expressway.

The rationale seems to be have a higher rate wherever the potential of an area is higher.

What are circle rates and stamp duty rates?

A circle rate, or ready reckoner rate, is the minimum price at which the property sale is registered. This rate is determined by the State government and is generally reviewed to ensure that it is in line with the market rate. In the event of a property being bought or sold, the stamp duty and the registration charges are calculated basis the circle rate or the actual value of the property, whichever is higher.

Earlier, Finance Minister Nirmala Sitharaman had allowed people to buy homes at a value 20 percent lower than the circle rate. This norm, no longer in force, was applicable on properties priced below Rs 2 crore, until June 30, 2021.

Will buyers who have signed property contracts with developers earlier also have to pay the higher rate?

Yes. Even if a buyer has signed an agreement with a builder before the increase in circle rates kicks in, stamp duty is to be paid basis the rates prevalent on the day the sale deed is executed.

Should the government be reducing stamp duty instead of circle rates?

Experts say the impact of increasing circle rates will surely impact the stamp duty rate. Once the circle rates are increased, the overall amount to be paid as stamp duty rises.

The Delhi government had reduced circle rates earlier this year, until September. Circle rates have been hiked in Gurgaon and the proposed hike in Gautam Budh Nagar is likely to dampen sentiment in the NCR market.

What impact will the proposal have on the real estate market?

Both homebuyers and developers’ bodies have opposed the move and are planning to file objections. They are of the view that this may have a negative impact on the real estate market during the Covid pandemic.

Manoj Gaur, CMD, Gaurs Group and Vice-President (North) at Credai National, said that if the proposal is implemented it may have a negative impact on the real estate sector, which is already struggling. Instead, the government should follow the Maharashtra model and reduce stamp duty rates by half to increase revenue, he said.

Shravan Govil, CEO, Omaxe Heritage, said the proposal would dampen home-buying sentiments in Noida and the Greater Noida region.

“The NCR market is already struggling with an inventory overhang and low sales. An increase in the circle rate at this stage will push fence sitters away from the housing market and delay the recovery of real estate in the region,” he said.

Abhishek Kumar, President of the Noida Extension Flat Owners Welfare Association (Nefowa), told Moneycontrol that the association is planning to file objections to the proposal as thousands of buyers have been awaiting possession of their flats for more than 10 years.

“It’s always the homebuyers who have to bear losses. Several buyers have died or lost their jobs during Covid-19 and inflation has touched the roof. This will impact the middle-class more than ever before. Why is it always the homebuyers who have to suffer?” he asks.

'Proposed hike in circle rates ill-timed'

The proposal to raise circle rates in Noida, Greater Noida and along the Yamuna Expressway by as much as 40 percent and additionally apply a 5-12.5 percent surcharge on properties along the Metro route or near the Expressway could not have come at a worse time.

“The NCR real estate market has only just begun recovering from the dual impact of Lockdowns 1.0 and 2.0. A softer pricing regime would have encouraged more buyers as they are still struggling with the economic impact of the Covid-19 pandemic. At this point, it is still only at the proposal stage and it is hoped that the authorities will reconsider this ill-timed move,” said Anuj Puri, Chairman, ANAROCK Property Consultants.

It should be remembered that Noida saw the maximum sales even during the pandemic. A report by JLL entitled 'Delhi NCR Residential Market Update: Q2 2021' has said that the majority of the units sold were concentrated in Noida (46 percent) in ready-to-move-in and nearly-completed projects. Ghaziabad also saw good traction, contributing 31 percent of the sales.

Noida has seen better sales because it is a mass market.

“If circle rates are increased in Noida, this may impact the sales momentum of residential projects. The market in Delhi NCR will see a delay in recovery if residential prices are increased due to the increase in circle rates and stamp duty. ...impacting sales in the affordable and mid segment as they are price sensitive,” said Samantak Das, Chief Economist and Head of Research & REIS, JLL.

“While this revision in circle rate comes after a hiatus of four years, the timing is questionable as the real estate sector is gradually gaining ground amidst the pandemic. It (the hike) can wait for another six months,” he said.

Moreover, as concerns over unsold inventory continue to prevail in Noida, there is actually a need to provide incentives to push sales. Currently, the focus of developers is on offloading unsold inventory, and if circle rates are increased, this will have trickledown effect on both buyers and developers.