Proposed hike in UP circle rate may hit property demand, says rating agency ICRA

The Uttar Pradesh government’s proposal to increase circle rates in Noida would increase the cost of acquisition of properties and affect demand, rating agency ICRA said today.

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.

“The proposal, which is currently open for public opinion until July 25, 2016, involves increasing the circle rates ranging from 15 per cent to 25 per cent. This, along with the proposed increase in the stamp duty in Noida from 5 per cent to 7 per cent, will further lead to a rise in the acquisition cost of real estate at a time when the industry demand is already muted,” ICRA said in a statement.

This, it said, is in complete contrast to what has been recently witnessed in Gurgaon, Haryana and is also being currently evaluated by Delhi.

“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,” said Shubham Jain, Vice President, ICRA.

In addition, neighbouring cities like Gurgaon might benefit where the respective State Government had reduced the circle rates recently, it added.“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,” the statement said.