In a webinar conducted on 28 April 2020 by the National Real Estate Development Council (NAREDCO), a real estate developers' body, Devendra Fadnavis, former chief minister of Maharashtra, suggested that the government should bring down the ready reckoner rate by as much as 40% for the next two years in the state, in order to give a boost to the real estate sector.
While moderating the webinar, Niranjan Hiranandani, national president, NAREDCO, stated that reducing ready reckoner rates and slashing stamp duty can revive demand in the sector. Read on to find out what the ready reckoner rate is, what purpose it serves and the impact it has on the real estate sector.
Ready reckoner rate
Ready reckoner rate, also known as circle rate, is the minimum price at which a property has to be registered in case of its transfer. The rates are determined by state governments and are revised from time to time according to market dynamics. In fact, ready reckoner or circle rate may differ within cities in the same state, and among various localities of a city. Even within localities, rates may differ based on the property type (residential, commercial or institutional), location, and size of the plot, and various other factors. These rats are an indicator of the likely prices of properties in various areas. A property has to be registered either on the actual transaction value or the minimum rate set by the government, whichever is higher.
How does change in ready reckoner rate impact demand?
When a property is bought or sold, state governments collect stamp duty and registration charges on the declared value or the circle rate, whichever is higher. These charges are usually defined as a percentage of the transaction value, and differ across states. In some states it is as high as 8-10% of the transaction value. However, given the slowdown in the real estate market over the past five or six years, it’s possible to find a property below the ready reckoner rate.
In cases where the actual price paid by a buyer is less than the ready reckoner rate, the property has to be registered based on the ready reckoner rate.
This acts as a deterrent for property buyers as well as sellers against selling or buying below the circle rate. Because if they do so, the buyer has to pay additional stamp duty, and the seller has to pay additional capital gains tax on the notional gains, if any. Reducing the ready reckoner rate or bringing it in line with prevailing price can benefit both buyer and seller and thus can help revive demand in the sector.