Any property transaction involves various financial aspects and legal compliance for the buyer and seller. One important factor that influences such transactions is the aspect of circle rates.
What is a circle rate?
Property prices generally depend on market forces like demand and supply. However, several key components affect property prices. The circle rate is the minimum price for buying or selling a property in a specific area. If a property is sold below this rate, it is seen as black money or undisclosed income. In such cases, both the buyer and seller can face legal action.
Who decides circle rates?
In India, each state or union territory has its circle rates, which are generally fixed by the local authorities based on factors like the property location, prevailing market rates, facilities and infrastructure available in the area. These rates are periodically changed by the authorities to reflect changes in the real estate market.
Difference between circle rate and market rate
The market rate is the existing price at which a buyer is willing to purchase a property. The buyer’s perception of the property’s value and the negotiation between the buyer and seller influences the market rate. The market rate is usually not less than the circle rate.
For instance, a buyer is interested in purchasing a residential property. The buyer would assess similar properties in the market, taking into account factors such as size, amenities, location, and recent sales of comparable properties. Based on these considerations, the buyer would determine the market rate they will pay for the property.
While market rates are dynamic and can change rapidly, circle rates are typically revised periodically by the government and may not respond as quickly to short-term market fluctuations.
When the gap between the circle rate and the market rate is smaller, it facilitates a smoother loan approval process and reduces potential complications.
Impact of rise in circle rates
When the authorities increase circle rates, it often leads to inflated property valuations. This, in turn, impacts other financial aspects of property transactions as well. For example, it leads to higher stamp duty and capital gains tax.