Gurugram luxury housing market will be first is line to be impacted by hike in city's circle rates

The move is expected to slow the buying momentum for projects across segments and independent floors.

The circle rate, determined by the state government, 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 on the basis of the circle rate or the actual value of the property, whichever is higher. The stamp duty levied on such properties is a major revenue earner for the government.

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

In sectors along the SPR such as 58 to 65 that are closest to Golf Course Road and the Rapid Metro corridor, the circle rate for land has gone up by Rs 6,000 per square yard. The new rate in these areas is Rs 36,000 per sq yard. In DLF 2, the rates have been revised from Rs 77,000 to Rs 85,000 per sq yard.

The sectors along Golf Course Road such as  27, 28, 42 and 43 have seen a Rs 5,000 increase in the rate to Rs 55,000 per sq yard. In the new sectors along Dwarka Expressway, the rate has been increased from Rs 30,000 to Rs 36,000 per sq yard.

Circle rates of privately developed colonies have been revised in Gurugram and Wazirabad tehsil by 5-10%, Manesar tehsil by 10-15%, Farrukhnagar tehsil by 30-50%, and Badshahpur tehsil by 25%. In the case of group housing colonies, the rate has been increased from five to 66% in some cases, depending on the revenue registration data.

The circle rates – also known as collector rates in Haryana – are usually revised twice a year by the state government. 

Also Read: Delhi govt extends 20% reduction in circle rates till June 2022

"The hike will make registration of properties more expensive. Contrary to expectations, the circle rates in a few major markets in Gurugram are proposed to be increased by as much as 25% and even more," said Santosh Kumar, vice chairman of real estate services firm Anarock Group.

This hike may dampen end-user and investor sentiments, which had begun to revive in 2021 despite the pandemic. As per Anarock Research, housing sales in Gurugram saw 115% rise last year at 15,590 units last year.

Both the primary and secondary housing markets will be negatively impacted by the hike. Anarock Research also indicates that Gurugram has the highest unsold stock in entire NCR at about 64,830 units as of 2021-end. This hike may only worsen the situation for developers looking to shed their unsold stock.

Given that the market rates have hardly seen any changes in recent quarters, it was expected that circle rates would largely remain unchanged or even see some marginal drop, Kumar explained.

A major hike in circle rates impacts all segments of real estate, but the most immediate impact will be on the luxury housing market in up-scale areas along Golf Course Road and various other sectors in the city, he said.

On the positive side, this hike could give a major lifeline to the real estate market in Noida and Greater Noida, which have already seen a decent uptick in 2021. Both Noida and Greater Noida saw their unsold inventory go down by 4% and 14% respectively during 2021.

“The rate increase comes against the backdrop of considerable market recovery over the last year, especially in the plotted segment, where the market witnessed significant appreciation. The upward revision is pragmatic (helps in eradicating the cash component for secondary transactions); however, this will certainly dampen sentiments in resale (secondary) market transactions. The impact of the measure won’t be pronounced in the primary market segment,” said Ashutosh Kashyap, director of advisory services at Colliers India.

Developers agree.

“The revision in circle rates will further increase the cost for the end-user by up to 25% in stamp duty. In the current market scenario such an increase would put more financial burden on buyers which might impact sales. Even though the government has increased rates slightly in affluent areas of Gurugram, other sector circle rates have also increased. This will have a cascading impact on prices," said Pradeep Aggarwal, founder and chairman of Signature Global Group and chairman, Assocham - National Council on Real Estate, Housing and Urban Development.

“An objective market assessment of property prices in a city such as Gurugram is the need of the hour, but the approach to determining circle rates needs to be reconsidered in order to capture the market rates more accurately,” he added.