The property prices in an area are affected by a number of factors. One such factor is the Circle Rate. Circle rates are determined by the revenue department or development authorities of the state government and are known by the name of ‘Ready Reckoner’ in Mumbai and ‘Guidance Values’ in Karnataka. It can be defined as the minimum price at which a residential or commercial property, plot or a built-up structure can be sold or transferred.Basically, the circle rates are set to define the amount of stamp duty one has to pay to the government on a property transaction. When the government publishes the Circle Rates officially, it becomes the minimum floor price. This is considered as the minimum price because if the property is sold below the set reference rates the difference is seen as black money by the income tax department. Hence, neither the developers sell below this rate nor do the buyers purchase below it.
While Circle Rates are set by the authorities, market rates are determined according to the demand and supply forces. It is usually governed by the seller’s expectation to earn and buyer’s inclination to pay, hence the demand and supply factors come into play. In almost all major property markets of India, circle rates are much lower than the market price because they do not reflect the basic realities of the market situations. In spite of being interconnected, these two rates have negligible impact on one another.
The answer as to how circle rates affect property prices in the area lies in the profit margin of the developers. When the government increases the circle rates, the developer’s margin diminishes. So if they have to maintain the present margin, they have to increase the property prices. In a downward trending property market, the increase in circle rates can result in catastrophic situations.
A rise in circle rates multiplies the government’s earnings as stamp duty and property taxes are calculated on the basis of circle rates. Though it creates an additional burden on the buyers, a higher circle rate is beneficial in the long run as a high valued of investment will call for an increased resale value.