What are Ready Reckoner Rates?
Ready Reckoner (RR) rates, are predefined values of immovable properties determined by the state government, below which a property cannot be registered. It is also referred to as circle rate or guidance value in some cities. State governments collect stamp duty and registration fees on real estate transactions basis the ready reckoner rate or the agreement value, whichever is higher. Hence, changes in RR rate impact both homebuyers and the exchequer of the government.
What are the parameters while deciding RR rates for a locality?
Why are RR rates being revised by states?
RR rate is reviewed by the state governments on an annual basis so as to reflect the true market value of real estate. While RR rates act as an indicator of the property prices of a particular locality and give buyers a perspective on the price movement of that locality, they do not necessarily represent the actual market price. These rates are reviewed and revised annually by the respective state governments to bring them closer to market rates. Lower gap in ready reckoner rate and market rate also limits scope for unaccounted cash transactions and prevents undervaluation of properties.
Why were RR rates lowered in many states post pandemic?
During 2010 – 2015, the ready reckoner rate in Maharashtra was increased by more than 10% every year. However, demonetization, RERA and GST reforms in last few years significantly hit the real estate sector impacting the overall real estate demand. As a result, in some markets, the market rates remained stagnant while in some locations, market prices went below circle rates. In this scenario, developers were unable to sell properties below circle rates fearing penalties from tax authorities. Hence there was a need to revise the RR rate downwards. During 2020-21, various state governments announced reduction in circle rates for a limited period of time. While Delhi and Karnataka governments reduced circle rates by about 10-20%, Maharashtra government hiked the circle rates by average 1.74% during September 2020. This hike was very marginal as compared to an annual average hike of 10% during 2010-15 and was done after a gap of 2.5 years. Overall, the average hike in Mumbai during September 2020 was noted at less than 1%, to reflect market pricing to the extent possible, as market prices largely remained stagnant during the period. This marginal revision in Mumbai RR rates had little impact on housing registrations in the city. However, during the same period, there was a significant stamp duty waiver announced by the Maharashtra government. Maharashtra government slashed the stamp duty rate by 3% in Mumbai region and 2% in rest of Maharashtra. This led to a significant increase in property registrations in the state.
Delhi government in February 2021 announced a 20% reduction in the circle rates across all categories until September-21 and has decided to extend the waiver till June-22. This move was largely taken because circle rates in many localities such as Friends colony, Vasant Vihar and New Friends colony, were higher than the market rates. Hence, reduction in circle rates provided some relief to property owners who were not able to liquidate their properties due to mismatch between circle rates and market prices. To address this issue, during November 2020, finance minister Nirmala Sitharaman announced tax relief for home buyers and developers buying or selling residential properties below the circle rates. The relaxation was applicable if the differential is up to 20%. However, this waiver was only given for a limited period and only applicable to residential properties valued up to INR 2 crore.
Impact of revision of RR rate on real estate registrations and revenue mop-up in MMR
Average annual increase in RR rate in MMR
Stamp duty waiver, marginal hike in RR rate led to MMR market’s revival
Stamp duty waiver, unchanged RR rates, decade-low home loan rates and largely stable prices led to record number of registrations during the period. According to ‘MMR- housing uptick aided by support’ report by CREDAI-MCHI, Colliers and CRE Matrix, 2021 recorded housing registrations of about 2.42 lakhs in MMR, highest during the decade despite the second wave of the pandemic. The total number of registrations in 2021 were 20% higher than 2019, a significant increase from pre-covid levels.
While the industry is still recovering from the impact of pandemic, and price movement continuing to be slow, the state government has decided not to increase the RR rate for the next year till market picks up. Keeping the RR rates unchanged will provide further relief to the homebuyers and developers and will likely lead to a faster market recovery.
Conclusion
Keeping the RR rate in sync with the market rate is the need of the hour since market is still recovering from the impact of the pandemic. Considering the current macroeconomic scenario, it is ideal to keep the RR rates unchanged until the market recovers and sales improve. Increase in RR rate will likely push developers to increase the property prices in the current scenario. Looking forward, Maharashtra State government also needs to take a cautious and realistic approach while revising the RR Rate for any locality. The rates should be determined after a careful consideration of the prevailing market prices, and current demand and supply dynamics. This can help the market gain momentum.