When buying a home, negotiating the best price is key to getting maximum value. But how do you know what is a fair rate for a property? In India, the Ready Reckoner (RR) rate serves as a guidance tool exactly for this purpose.
The ready reckoner rate, also known as the circle rate or guidance value, is the minimum price at which a property needs to be registered for a deal between the seller and the buyer.
Keep reading to understand what is ready reckoner value, why it matters, and how it impacts buyers.
What is the ready reckoner rate meaning?
The ready reckoner rates represent the government’s estimated guideline rates for properties in different cities. Each state, city, and even neighbourhoods within cities have their own specific rates. The authorities consider various factors to determine the real estate cost in a particular area.
Using these factors, a benchmark is set, and no real estate transaction in that specific area is allowed below this benchmark, known as the ready reckoner rate. Stamp duty and registration costs are imposed by the government based on these guideline rates exclusively.
How is the ready reckoner rate calculated?
Here’s how you can calculate the ready reckoner rate:
1. Determine the property’s build-up area, considering amenities, plot area, etc. If there’s a value 1.2 times the carpet area, use the higher one.
2. Select the property’s location and calculate its value using specific formulas.
3. For residential apartments in housing societies:
– Multiply property built-up area (sq. mt.) by ready reckoner rate per square metre.
– Add open car parking slots multiplied by 40% of the ready reckoner rate per unit area.
– Add sold car parking slots multiplied by 25% of the ready reckoner rate per unit area.
What are the factors that affect the ready reckoner rate?
The government authorities or municipal corporations set RR rates in a region by considering a few factors to determine property values for taxation. They include:
Location – Geographical advantages, infrastructure, and growth prospects contribute to higher RR rates.
Property size – Residential, commercial, or industrial distinctions and larger sizes impact RR rates.
Amenities and infrastructure – Well-developed areas with quality amenities command higher RR rates.
Market demand – Areas with high property demand may see inflated RR rates reflecting market dynamics.
What is the importance of the ready reckoner rate?
The ready reckoner rate holds immense significance in real estate for several key reasons. Firstly, it guarantees a fair and standardised property valuation in a specific area, preventing any unjust undervaluation or overvaluation during transactions. This not only promotes transparency but also establishes fairness in real estate dealings.
Moreover, the RR rate is pivotal in calculating stamp duty, a substantial component of property transactions, providing a benchmark for determining applicable fees. Additionally, it serves as a valuable indicator of market trends. Analysing its changes over time provides insights into the dynamic nature of property values in specific regions, enabling real estate professionals to make well-informed investment decisions.
Beyond its role in the real estate realm, the RR rate significantly contributes to government revenue. By setting a minimum property value, authorities ensure the collection of appropriate taxes and fees during transactions. This revenue, in turn, supports public infrastructure development, welfare programs, and other government initiatives, contributing to the overall well-being of the community.
What is the ready reckoner rate’s relationship with stamp duty?
The ready reckoner rate serves as a reference point for calculating various taxes and duties related to real estate transactions, such as stamp duty and property registration fees.
The stamp duty is levied on the amount at which the property is transacted. But the question is – is it levied on the ready reckoner rate or the market value? Well, the stamp duty is levied on whichever value is higher between the ready reckoner rate and the market value.
For example, if you purchased a property with a market value of Rs. 20 lakhs but the ready reckoner rate is Rs. 19 lakhs, the stamp duty will be charged on the market value of Rs. 20 lakhs since that is higher.
However, if the ready reckoner rate is Rs. 20 lakhs but the property’s market value is Rs. 19 lakhs, stamp duty will be levied on the ready reckoner rate of Rs. 20 lakhs as that is the higher amount.
What is the ready reckoner rate’s impact on property transactions?
The ready reckoner rate has a big impact on property deals, especially for those looking to buy homes in a particular area.
The RR rate of an area tells buyers the standard property rate there. It helps them know how much more they might be paying compared to the standard rate when investing in real estate. If there are chances of RR rates going up, property prices usually increase, and local property values also rise.
Also since the market value of a property is often more than the RR rate, it’s smart for buyers to pick properties where the difference between the two is low. This way, buyers can make a profit when they sell the property because the price is likely to go up when the RR rate increases.
Homebuyers should be aware that according to Section 43CA of the Income Tax Act, selling a property below Ready Reckoner (RR) rates can result in a penalty. If a property transaction takes place at less than 10% of the RR rates, both the buyer and the seller may be subject to a 35% penalty.
Final thoughts
The ready reckoner rate has become an important reference point for property transactions. It reflects the realistic market value of properties, serving as a benchmark for negotiations between buyers and sellers. With several taxes and loan amounts linked to the ready reckoner rate, buyers need to assess their finances and tax outgo before making purchase decisions.
However, if you’ve made your purchasing decision but lack sufficient funds for it, turn to Tata Capital. We offer a home loan of up to Rs. 5 crores at attractive interest rates and with minimal documentation. You can also use our home loan EMI calculator to get an estimate of your EMIs well in advance. Apply today!
03 September 2024
6 mins read
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