Circle rate is an important term that you should be aware of while buying or selling property in an area. It is defined as the minimum rate at which the sale and purchase of a property in a particular area can take place. Circle rates are determined by the state government’s revenue departments or the state’s development authorities and serves as a reference point to determine the actual property prices in that region.
Circle rates also underline that the sale and purchase of a property has to be done at arm’s length principle. Being a yardstick of actual property rates, circle rates invariably affect the stamp duty and registrations costs of the property as well.
How does it differ from the market price?
While circle rate and market rate are connected, circle rates have very little bearing on the actual market rate of the property. As is evident by now, market rate is the actual market price of the property that depends on the expectation of the seller (individual or builder) and the interest of the buyer.
Circle rates are determined on the basis of demand and supply i.e. property with high supply is likely to have lower demand and property where the supply is lower might have comparatively higher demand. These demand and supply functions are in turn determined by many other factors. Some of the prominent ones are: –
- Location & amenities
- Population and demographic profile of the area
- Amount of immigration
- Inflation
- Development of Infrastructure in the neighbourhood
- Quality of specific property development
The need for parity
The biggest drawback with circle rates in many areas is that they do not get frequently reviewed and revised by the concerned authority – which is why there’s a big disparity in the circle rates and market rates of the property. At present, there is a sincere need for the circle rates to be revised in accordance to the prevailing market rates. Not only will it provide a better idea of the property value in a region and bring in more genuine buyers, it can also curb the inflow of unaccounted money within those areas.
The major caveat here is that bringing the circle rates on par with market rates will result in the home buyer paying higher stamp duty. That will no doubt increase the overall cost of buying the property. However, it will also bring in more revenue for the state governments or the development authorities that can be reallocated towards infrastructure development in the region. On a micro-economic level, revising the currently prevailing circle rates makes a lot of sense.
