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Opinion: Top Cities Reduce Gap Between Market Value and Ready Reckoner Rates
2020-06-15
In a significant trend seen in the Indian housing sector over the last five years, the latest data points towards a reduced difference between the ready reckoner rates (RRR) and the actual market prices in the primary (sale by the developer) segment in the top cities. From a more than 100 per cent difference between the two rates in certain areas in Mumbai, Pune, Gurugram, etc., in 2015, some localities presently show a mere 6 per cent variation.
Ready reckoner rates, also known as circle rates or guidance values, are the minimum values set by a state government below which a property cannot be registered. Each area within a city has its own RR rate on which stamp duty is calculated. To align circle rates with the actual market prices, most state governments previously regularly reviewed and increased the RR rates in cities either YoY or in two years. However, market values increased only marginally in the same period.
For instance, average RR rates at Jogeshwari East, in Mumbai, stood at Rs 11,571/sq. ft in 2015; today it is Rs 15,143 per sq. ft, an increase of over 31 per cent in five years. Concurrently, the market value in this period increased by only 6 per cent from Rs 16,300 per sq. ft in 2015 to Rs 17,280 per sq. ft.
Anuj Puri, Chairman, ANAROCK Property Consultants said, ?The gap between market values and RR or circle rates in many areas is as low as 6-7 per cent, equal or even negative. Registering a property below circle rates is not permissible. Section 43CA of the Income Tax Act says that developers and sellers will attract penalties for selling lower than RR rates. Moreover, even if buyers somehow purchased property below the circle rates, they will bear an additional tax burden as the difference between the two rates is taxable, both in the hands of the buyer and seller. Reducing RR rates would reduce stamp duty on property purchase, thereby boosting buyer demand and also providing relief to developers as the multiple premiums they pay to the state governments are linked to the RR rates.?
The major advantage of this reduced gap is that it discourages black or unaccounted money transactions. The primary sales market in Tier-1 cities today offers limited scope for unaccounted cash infusions because of the minimal gap between the state-notified circle rates and the market value quoted by developers in such regions.
Reducing Gap in Top Cities
In the last four to five years, most state authorities regularly increased the RR or circle rates in cities to align them with market values. Dwarka Expressway in Gurugram, for instance, saw circle rates rise by 43 per cent in the last four years, from Rs 2,900 per sq. ft in 2016 to nearly Rs 4,133 per sq. ft in 2020. However, market values in this period increased only by 10 per cent. The gap between the two rates is narrowing significantly. Other cities show some equally interesting trends.
Mumbai
|
Micro Markets |
Avg. RRR FY 2020 (Rs Per Sq. Ft.) |
Avg. Market Value 1Q2020 |
% Difference in 2020 |
% Difference in 2015 |
|
Lower Parel |
32,609 |
34,660 |
6% |
37% |
|
Worli |
35,350 |
38,560 |
8% |
16% |
|
Jogeshwari East |
15,143 |
17,279 |
12% |
41% |
|
Dadar |
13,624 |
32,600 |
58% |
95% |
|
Tardeo |
23,597 |
56,659 |
58% |
100% |
Source:ANAROCK Research
Mumbai has seen a significantly reduced gap between market value and RR rates over the last five years. For instance, in Lower Parel the difference between the two rates is just 6per cent, followed by Worli with 8 per cent and Jogeshwari East with a 12 per cent difference.
In value terms, the average RRR for flats in Mumbai's Lower Parel is approximately Rs 32,609/sq. ft, while the average market value is Rs 34,660/sq. ft In Worli, another high-profile area in the city, the average RR rate is Rs 35,350/sq. ft as against the average market value of Rs 38,560/sq. ft.
Having said this, there are also some localities where the difference between the two rates remains as high as 58 per cent. However, this can be attributed to the ultra-luxury specifications in some projects. For instance, in Tardeo, the gap between the market value and the RR rate is 58 per cent. The average RRR is Rs 23,597/sq. ft, while the average market value is Rs 56,659/sq. ft. In Dadar, the average RRR is approximately Rs 13,624/sq. ft and the market value is Rs 32,600 per sq. ft.
Pune
