Cities with higher circle rates to gain from Sitharaman's new relaxation

While developers hail FM's announcement, they want the govt to exempt the entire interest paid on housing loan from income tax

The Finance Minister’s move to increase the difference between agreement values of properties and circle rates to 20 per cent is expected to boost sales in cities where circle rates are higher than negotiated prices.

Though large developers in Mumbai and Delhi have said that the Finance Minister’s announcement will not bring them and buyers much relief due to cap of Rs 2 crore, Mumbai suburbs in Andheri and further north on the western line, Chembur and beyond on the harbour line and areas around Thane, where price are within Rs 2 crore, are expected to see an impact.

Some parts of NCR such as Noida and Gurgaon are also expected to gain.

“It (the announcement) will give necessary leeway for developers to offer discounts. Besides parts of NCR and Mumbai, cities such as Pune and Bangalore will gain,” said Balaji Raghavan, managing partner and senior fund manager at IIFL.

“Across the country, the circle rates are at par with market values. In Tier II cities, circle rates are lower than market values. In Mumbai, circle rates are higher than market value in most places,” Raghavan said.

He said in parts of NCR and cities such as Surat, where cash component is still prevalent, there won't be much impact as transactions are registered at lower than market values.

“Whever ready reckoner (circle) rates are higher, there will be an impact. People were not able to buy because of this. Now that stock will get cleared,” said Kamal Khetan, chairman of Mumbai based Sunteck Realty.

In NCR , the total unsold inventory stood at 173,000 units at the end of Q3CY2020, of which nearly 94 per cent are priced below Rs 2 crore. In Mumbai Metropolitan Region, the unsold units at the end of Q3CY20 stood at 208,000, with 84 per cent priced below Rs 2 crore, according to Anarock Property Consultants.
 

While announcing the stimulus on Thursday, Finance minister Nirmala Sitharaman said:“A lot of inventory will get cleared and buyers will pay less tax on differential between circle rates and agreement value.”

 Sitharaman said the move would help middle class which wants to buy at a time when there is “supply side boom” and inventories are building up.

Developers want more

While property developers have welcomed the FM’s announcement, they are expecting the government to come up with additional sops to boost housing demand.

“The government should exempt the entire interest paid on housing loan so that people will find it attractive to buy homes,” said Rajiv Talwar, adding that the current cap on interest payment should go.

Added Sanjay Dutt, managing director and CEO at Tata Realty & Infrastructure, said :”It is crucial to note that the Circle rate exemption of 20 per cent also means state Governments must revise the ready reckoner downward by 20 per cent or reduce proportionate stamp duty to give short term relief.”