As an investor or a first-time homeowner, real estate can turn out to be a great investment that offers you many tax breaks. And while it is a fairly simple subject to comprehend, it also includes some confusing technical jargon. ‘Circle rate’ and ‘market rate’ are two such terms that you may have heard your broker use from time to time.

For starters, circle rate is a very important term that you must understand as a property buyer. It is a major criterion used to assess the value of a property that is revised periodically and varies for each area. Let’s understand both the terms in detail.

What is Circle Rate?

Circle rate is the minimum price at which a commercial property, ready house, apartment, or plot can be registered for sale. The minimum rate or price is laid out by the local development authorities or the state government. The primary purpose of deciding on a circle rate is to ensure that every area is listed against the correct price index. There can be different circle rates in varying vicinities of the same city. The circle rate works effectively towards keeping a check on the speculation that surrounds property prices. After all, the real estate market is quite opaque.

Important Factors to Note About Circle Rate

  • A circle rate is indicative of the property price.
  • It is typically lower than the market rate.
  • It is always higher than the real estate transaction rate.

What is Market Rate?

The market rate is the rate that the buyer pays the seller at the time of obtaining property ownership. This price is the final rate decided mutually between the two parties, i.e the buyer and the seller. One could say that it is the actual value of the property that is driven by the seller’s expectations and the buyer’s ability to pay.

To illustrate, Rajiv is looking to sell his home in a prime location in Mumbai. He will consider the high demand for the location, easy proximity to places around the city, and other such factors when putting a price value against his home. When a buyer has the propensity to pay against Rajiv’s expectations, a sale takes place. The rate that is put down on the sale agreement document and exchanged between the two parties is the ‘market rate’.

Important Factors to Note About Market Rate

  • Market rate is directly proportional to the demand and supply in the area.
  • It is based on the price expectation of the seller.
  • Buyers use it as a directive when reviewing their purchasing capability.
  • Market rate indicates the degree of appreciation of real estate value in an area.

Circle Rate vs. Market Rate

The circle rate is lower than the market rate in most instances, and the two have a limited impact on each other. When the circle rate and the market rate vary greatly, it is an evident lag in the value perception within the real estate market. This variance is also one of the major causes of black money transactions within the market.

Importance of Understanding the Circle Rate and Market Rate

It is essential to stay updated on the circle rate and market rate when dealing with real estate. Knowing these two rates before finalizing a property can reduce a lot of financial hassles. It will help determine your buying capability while also indicating the degree of appreciation for the location. Most importantly, it is also quite helpful for acquiring a home loan. A home loan is offered based on the sales deed. A smaller gap between the circle rate and the market rate will be beneficial to the buyer.

Find Circle Rates For Your City

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  • ✔️What is circle rate and agreement rate?

    The circle rate is the minimum price that is set by the government basis the current market value of the area that holds the property. On the other hand, the agreement rate is the one on which the sale is made post an agreement between the seller and buyer.

  • ✔️What is a ready reckoner?

    The circle rate is also known as the ready reckoner rate. It is the minimum price at which a property must be registered when being transferred or sold.

  • ✔️How is the ready reckoner rate calculated?

    The ready reckoner rate is calculated by the local development authorities or the state government’s revenue department. It is calculated after considering the market value and the facilities available in the given area.

  • ✔️How do you calculate the value of a property?

    There are some effective ways that you can use to calculate the value of a property. These include hiring a professional appraiser, using online valuation tools, getting a comparative market analysis, and evaluating comparable properties. 

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