Gurugram’s Luxury Residential Segment will be First Impacted by a Hike in Circle Rates

The recent hike in circle rates of Gurugram is likely to make end-user and investor sentiments slightly less strong, which had begun to show positive signs in 2021 despite the pandemic

The immediate effect of the hike in circle rates of Gurugram – minimum prices at which the sale or transfer of a built-up house, apartment, plot or commercial property takes place – announced at the start of new year will increase prices for all segments of real estate starting from increase for luxury housing, experts say.

The luxury housing market comprises upscale areas along Golf Course Road and other sectors of the city. For instance, areas like Golf Course Extension Road and sectors along the Dwarka Expressway are affected by the hike with an increase of 10 to 25 percent. 

While circle rates of sectors adjoining the Southern Peripheral Road (SPR), Golf Course Road and Dwarka Expressway have increased up to 25%, those of commercial sectors remain unchanged.

The consequence of the hike in Gurugram’s circle rates is impeding  buying momentum for residential and commercial sector projects across all segments and property types.

The circle rates are determined by the state government to make sure that they are in line with the current market rate. When you buy or sell property, the stamp duty and the registration charges are calculated based on circle rate or the actual property value, whichever is high. The government majorly earns revenue through stamp duty levied on properties.

If we consider the sectors located along SPR such as 58 to 65 that are located very close to Golf Course Road and the Rapid Metro corridor, the circle rate of that land parcel has gone up by Rs 6,000 per square yard. The new rate of these areas is Rs 36,000 per sq yard. In DLF 2, the circle rates have been increased from Rs 77,000 to Rs 85,000 per sq yard.

The sectors located along Golf Course Road such as  27, 28, 42 and 43 have also witnessed a hike of Rs 5,000 in the rate to Rs 55,000 per sq yard. The sectors located along Dwarka Expressway, have also seen an increase in circle rates from Rs 30,000 to Rs 36,000 per sq yard.

If we look at the circle rates of privately  colonies in Gurugram and Wazirabad tehsil, the rates have been increase 5-10%, Manesar tehsil by 10-15%, Farrukhnagar tehsil by 30-50%, and Badshahpur tehsil by 25%. If we look at the group housing colonies, then the circle rate has been increased from five to 66% in some cases, based on revenue registration data.

The circle rates (also known as collector rates in Haryana) are generally reviewed twice every year by the state government.

Vice Chairman of real estate services firm Anarock Group, Santosh Kumar said, “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,”.

According to Anarock Research, housing sales in Gurugram witnessed 115% rise in 2021 at 15,590 units last year.

Unfortunately, both primary and secondary housing markets will get negatively impacted by the circle rate hike. Studies from Anarock Research indicate that Gurugram holds the highest unsold stock in the entire NCR of about 64,830 units as of 2021-end. This hike will worsen the state of developers planning to shed their unsold stock.

Kumar explained, “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”.

He added, “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”.

If we talk about the positive side of this hike, then this hike in Gurugram’s circle rates could give a major boost to the real estate market of Noida and Greater Noida, which is already soaring high in demand from a few years. Both Noida and Greater Noida registered a drop in their unsold inventory by 4% and 14% respectively during 2021.

Ashutosh Kashyap, director of advisory services at Colliers India, says “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,”.

Pradeep Aggarwal, founder and chairman of Signature Global Group and chairman, Assocham – National Council on Real Estate, Housing and Urban Development, says, “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,”.

He also added, “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,”.