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Easier loans, not cheaper homes

The new minimum rates for sale and purchase of property in different areas of Delhi will make it easier for people to buy homes, report Vibha Sharma, Arun Kumar and Amitabh Shukla.

india Updated: Jun 19, 2007 03:54 IST

The new minimum rates for sale and purchase of property in different areas of Delhi will make it easier for people to buy homes, reduce the black-money component in real-estate deals, and generate more revenue for the government. But property prices in the city are not likely to change much, according to experts.

Sanjay Verma, executive managing director (South Asia) of real-estate services firm Cushman & Wakefield, said: “Property rates in Delhi are not price-elastic because very few new houses are being added within the city. In the past two years, most of the real-estate development has been in outlying areas of Delhi.”

The Delhi cabinet cleared the ‘circle rates’, as the minimum rates are called, on Monday. These will come into effect once the notification, expected in a week, is issued.

The circle rates (see chart), which will not be revised for the next five years, will bring more white money into real-estate transactions and thus reduce tax evasion, said bankers. Home seekers will also get bigger loans from banks.

Madhumita Ganguly, senior general manager, HDFC, said: “Depending upon the repaying ability of the borrower, banks can now finance a substantially larger part of the real price of any property. Earlier the seller would want a major portion of the payment for a property in cash, which banks will not provide.”

In most property deals in Delhi, the amount paid in cash — usually unaccounted — is between 40 and 60 per cent of its total value.

Chief Minister Sheila Dikshit said the circle rates would simplify assessment of stamp duty, and bring transparency and efficiency into the process of registration. "It has been decided to adopt a reasonable option which makes circle rates rational and below the existing market rates. The rates approved are much lower than the prevailing rates of adjoining areas like Noida," Dikshit told reporters after the cabinet meeting that cleared the rates.

Property tax consultant Brig H.K. Dhawan said the rates were reasonable, but much lower than the market prices. "The rates, though quite reasonable, are on the conservative side. However, government revenue from property deals will increase because the black money component of the transactions will reduce," Dhawan said.

Revenue Minister Raj Kumar Chauhan said the government would earn an additional Rs 500-600 crore per annum. "Stamp duty evasion will practically end," he added.

Cushman & Wakefield's Verma agreed that tax evasion would decline. "However, the government needs to institutionalise the mechanism so that these rates are reviewed after every two years," he said.

People who have still not been able to buy a home hoped the circle rates would keep speculators at bay. "With the white-money component being increased, speculators will be reluctant to invest so much money in the real estate market," said Sunidhi Gupta, who works with a private company in Connaught Place.

First Published: Jun 19, 2007 03:52 IST