UP Govt pitch to hike Noida circle rates and stamp duty a damper for developers, says ICRA
The Uttar Pradesh government’s proposal to increase circle rates in Noida is in complete contrast to what has been recently witnessed in Gurgaon, Haryana and is also being currently evaluated by Delhi. The proposal, which is currently open for public opinion until July 25, 2016, involves increasing the circle rates ranging from 15% to 25%. This, along with the proposed increase in the stamp duty in Noida from 5% to 7%, will further lead to a rise in the acquisition cost of real estate at a time when the industry demand is already muted.
The circle rate is the minimum rate at which a transfer/registration of a property takes place and the government earns revenue by levying stamp duty on the registration value. In ICRA’s view, the suggested increase in both the minimum circle rates and the stamp duty is being viewed with caution in the backdrop of a slowdown in demand for real estate. Such a move will increase the cost of acquisition for the buyers. For the residential properties, the hike proposed is up to 15% while circle rates for institutional properties have been proposed to be increased by up to 25%.
According to Shubham Jain, vice president, ICRA, “The proposal to increase the circle rates as well as the stamp duty in Noida will be a credit negative for the Noida developers. Market participants are already facing liquidity constraints with slowing sales velocity and consequent increase in pressure on their cash flows. Such a move that increases the cost of acquisition may result in a further delay in the purchasing decision of the buyer. In addition, neighbouring cities like Gurgaon may benefit where the respective State Government had reduced the circle rates recently.”
In many micro markets, the market rates are lower than the circle rates. Market participants fear that in such a situation any further increase in circle rates may not be beneficial for the real estate sector.
Table 1: Recent changes in circle rates in some cities
|Greater Noida||15-25% ↑|
Source: ICRA research