In India, it is appropriate to define affordability in housing as being a function of three broad parameters - the monthly household income (MHI) of prospective buyers, the size of the dwelling unit and the affordability of the home buyer (the ratio of the price of the home to annual income or the ratio of EMI to monthly income).
For most people, navigating through complex real estate terminologies can be a baffling experience. However, a lack of understanding of the terms should not put you at a disadvantage or cause a delay in a home buying decision. This article will steer you through the concept of circle rate and market rate so that the next time you hear your real estate broker casually mentioning that the circle rates are high in a region, you can understand better. You will also be able to comprehend the impact of circle rates on your budget, which will help you plan your finance better.
What Is Circle Rate?
Circle rate is the minimum rate, per square ft. of land, at which a real estate transaction (sale or transfer) should be registered. It applies to both plot and constructed properties. It is important to note that no transaction can occur below the circle rate. It is also called guidance value or ready reckoner value in many Indian states. Circle rates vary according to localities or areas within a city and also types of projects. A completely-developed locality will have a higher circle rate than a locality in the outskirts or an area that is not fully developed.
Guidance value is fixed and revised by the state government. For example, the Tamil Nadu government fixes the circle rate for Chennai and other parts of the state. However, circle rates are not frequently revised to match the fluctuation of market prices. So, they are usually lower than the market rates and are only indicative of the property prices.
What Is Market Rate?
The market rate is the price a buyer pays the seller for a real estate transaction according to their agreement. In other words, it is the price a buyer is willing to pay and a seller is willing to accept for the property; this price will influence future market values. Since the market rate depends on supply and demand of the market, market rates of a high-demand area will be high.