Circle rate of the region is the minimum value at which a property should be registered in case of sale and transfer. The rates are defined by registration and stamp revenue department or local authorities after understanding the market indices with which they perceive the right prices at which property sale or transfer should occur. Circle rates differ in different states and even in adjacent localities within cities, based on the value of land.
The primary aim of circle rates is to curb the issue of unaccounted money transfer in the property transactions. The property has to be registered on the actual transaction value or the minimum rates set by the government, which is the circle rate. Mostly, property values are higher than the circle rates and in any rarer cases of lower value, the buyer will have to pay stamp duty calculated according to the circle rate prevailing in the region.
As said earlier, these rates are established to avoid under-valued transactions in real estate so that the government can create more revenue. In order to attain more capital gains, both ends of a property transaction will under value their properties than the market rates during the documentations. This will increase the circulation of black money in the country. A well maintained circle rates will curb the issue to a great extend.
When circle rates and land prices are directly proportional. When the rates are increased, builders will need to pay more for purchasing land. This makes home buying process more expensive. But it is not ideal to think that circle rates should be lowered. It signals that the particular region has become less attractive and the value has been diminished. An increase in circle rates will undoubtedly cause rise in property valuations and buyers need to arrange more money for stamp duty.
Bringing the circle rates in par with the market rates actually increases the value of investments and potential of resale value. The additional revenues that government raises through the process can also be used for support infrastructure developments. In this sense, revision of circle rates in par with the market rates can also impact positively.