The Delhi government on February 5 decided to scale back the circle rates for residential, commercial and industrial property within the city by 20 percent flat until September 30, 2021. within the backdrop of the deadline ending today and reports that the govt may extend the waiver until New Year’s Eve , here’s a glance at whether the benefit actually led to a rise in property transactions, especially in Grade A micro-markets, where there’s a circle rate and market rate mismatch.

The aim of reducing circle rates within the Capital, very similar to within the case of the Maharashtra government, was to spice up land sales after the adverse impact of the primary wave of COVID-19. The difference was that the Maharashtra government on August 26, 2020, decided to temporarily reduce stamp tax on housing units from 5% to twenty percent until New Year’s Eve , 2020, to spice up the stagnant land market, hit doubly hard by COVID-19. The stamp tax from January 1, 2021, until March 31, 2021, was to be 3 percent.

According to data available on the web site of the department of registration and stamps, 19,600 properties were registered within the Mumbai Metropolitan Region in December 2020; the amount touched 10,442 in January when stamp tax was 3%; In February, 10,198 properties were registered and within the following month the amount of transactions rose to 17,091.

In contrast, the Delhi numbers appear to be disappointing, albeit one were in touch in mind the very fact that the amount of housing units across categories in Mumbai is way greater than that in Delhi.

In golf course , four properties were registered within the March-September 2019 period; in 2020 the amount touched eight and in 2021, despite the waiver the amount is back to four, consistent with Zapkey.com, which analysed registered data across some category A Delhi markets.

In Jorbagh, where eight properties were registered in 2019, only three are registered in 2021. In Sunder Nagar, while two properties were registered in 2019 and none in 2020, four properties are registered in 2021.

In the West End market, where three properties were registered in 2019 and two in 2020, five are registered in 2021.

The Vasant Vihar property market that saw 80 transactions registered in 2019, 44 in 2020 has seen 92 registrations in 2021 which again may be a slight increase.

In Shanti Niketan, 13 properties were registered in 2019, three in 2020 and 10 in 2021. within the Chattarpur area famous for its farmhouses, 42 properties were registered in 2019, 47 in 2020 soon after the primary wave of COVID-19 and only 21 in 2021, consistent with data provided by Zapkey.com.

In the New Friends Colony area, 25 properties were registered in 2019, 14 in 2020 and 25 in 2021.

The bigger impact of the Delhi government’s move to scale back circle rates was meant to be felt on the category A property markets which had been struggling. These included New Friends Colony, Maharani Bagh, Vasant Vihar and Panchsheel Park, where transactions had bogged down with the particular market rate being significantly less than the circle rates. The cut in circle rates was meant to profit them by bringing the rates closer to the market rates and accelerating property transactions. But that didn’t happen because the second wave of COVID-19 started in April 2021.

“Due to the severe second wave of the pandemic and lockdowns, quite three months were lost. the important estate transactions cycle is usually five-six months from start to shut , and therefore the advantage of reduced circle rates was lost to Delhi citizens as they were locked into their homes until July. Two months are in no way enough to shut a deal worth quite Rs 50 crore” said Amit Goyal, chief military officer at India Sotheby’s International Realty.

“Besides, buyers need time to conduct due diligence on the property and send public notices in newspapers. In many cases, no objection certificates need to are available from relations who could also be residing abroad. Closing deals of this magnitude require a minimum window of up to eight to nine months,” he added.

“Most deals that are concluded within the previous couple of months are those where discussions started before the pandemic. Similarly, some transactions on which negotiations may have begun two months ago may get concluded within the next few months. Therefore, circle rate rebate doesn’t offer a practical solution for top value transactions.”

Category A and B markets

A blanket cut of 20% in circle rates might not be the simplest thanks to reset the property market, because Delhi is split into eight categories. In category A localities like Maharani Bagh, New Friends Colony, Panchsheel Park and Vasant Vihar the market rates are still below circle rates, particularly for giant size plots despite the 20 percent cut.

And in category B micro markets like Defence Colony, Anand Lok, Neeti Bagh and Greater Kailash, to call a couple of , the particular market rates are much above circle rates, leaving room for cash transactions.

The Delhi government, just like the Maharashtra government, should consider lowering stamp tax across market categories. Not only will it help increase transactions, it’ll also encourage more cheque transactions, consistent with Goyal.

Delhi would benefit tremendously by resetting circle rates and colony categorisation besides extending the 20 percent tax holiday to March 2022, and softening the stamp tax charges for a limited period like Maharashtra has done, he added.

Sunil Tyagi, senior partner and co-founder of Zeus Law, agrees. rather than circle rates, Delhi hould consider reducing stamp duties on property transactions.

Stamp duty is calculated on the sale consideration or the circle rate, whichever is higher. just in case of Delhi, there are three sorts of markets. the primary is where the sale consideration is above circle rate.

To cite an example, if the circle rate is Rs 100 and therefore the sale consideration is Rs 120, then the stamp tax will need to be paid on Rs 120 which suggests that there might not be any benefit. Thus, albeit circle rate is reduced in these cases, there’ll be no benefit to the customer of the property.

The second scenario is that of circle rate and therefore the sale consideration being an equivalent . during this case, albeit the circle rates were reduced the sale consideration would remain an equivalent and thus the customer might not stand to realize .

The third instance is that of circle rate being above the sale consideration wherein the customer gets to pay a better stamp tax . There also are tax implications both for the buyerand the vendor . The latter may need to find yourself paying capital gains tax within the event of the circle rates getting reduced.

“While the news that the govt is considering extending the circle rate waiver until December 2021 is positive, it should have instead thought of reducing the stamp tax rates. stamp tax benefits, as has been proven just in case of Maharashtra, percolate to everyone and results in spurt in sales which didn’t happen just in case of Delhi,” Tyagi added.

What are circle rates and stamp tax rates?

In Delhi, stamp tax varies between 4 percent and 6 percent of the transaction value, while the registration fee is 1 percent of the transaction value.

Circle rate, or a reckoner rate, is that the minimum price at which the property sale is registered. This rate is decided by the government and is usually reviewed to make sure that they’re in line with the market rate. within the event of a property being bought or sold, the stamp tax and therefore the registration charges are calculated on the idea of the circle rate or the particular value of the property, whichever is higher.

In Delhi, stamp tax varies between 4 percent and 6 percent of the transaction value, while the registration fee is 1 percent of the transaction value. it’s 6 percent if purchasers are men and 4 percent for ladies buyers.

To cite an easy example, if the dimensions of a plot is 300 sq yards and therefore the circle rate of a neighborhood is Rs 10,000 per sq yard and therefore the stamp tax is 6 percent, the stamp tax are going to be Rs 1,8 lakh. Rs 30 lakh is that the value of the land and 6 percent is Rs 1.8 lakh but there’s a discount if the circle rate come right down to Rs 8,000 per sq yard.

Valuation on the idea of the circle rate are going to be Rs 24 lakh, not Rs 30 lakh and thereon the stamp tax payment are going to be Rs 1.44 lakh.