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The Maharashtra government is expected to increase the stamp duty on house registration by 1 per cent from April 2022, just in time when Mumbaikars indulge in home purchases during the auspicious season of Gudi Padwa. Will this hamper home-buying momentum?
After a brief breather from stamp duty hikes, the government is all set to increase it by 1 per cent to an effective rate of 6 per cent of the agreement value from the current 5 per cent. Would this dampen home-buying sentiment? Mumbaikars made merry last year when the stamp duty charges dropped in the city. MMR witnessed a 53 per cent growth year-on-year (YoY) with sale of 28,607 units in H1 2021 against 18,649 units in H1 2020, according Knight Frank India’s India Real Estate January – June 2021.
This strong performance was largely attributed to low stamp duty, reduction in home loan rates and economic revival after the first wave. However, once these low stamp duty rates of two and three per cent ceased in April 2021, home sales normalised.
However, according to data published by IGR Maharashtra, Mumbai saw a total of 10,379 properties registered in February 2022 – a 27 per cent increase over the previous month and 2 per cent more than the same period last year.
The cause of this spike? Maharashtra government’s recent decision to charge one per cent Metro Cess on property purchases effective from April 1, 2022.
This decision seems to have triggered a fresh wave of home buying activity.
How would the Metro Cess affect home buyers?
“As on date, the stamp duty charges in key cities of Maharashtra like Mumbai, Pune, Nagpur and Nashik are at five per cent while it is six per cent in other areas and four per cent in rural areas. However, in Pune, there is an additional one per cent charged as local body tax (LBT), which effectively takes the stamp duty up to six per cent,” informs Prashant Thakur, sr director and head – research, Anarock Group. With the addition of the Metro Cess, Mumbai’s overall stamp duty charges would increase to six per cent while in Pune, it would reach seven per cent.
Kapil Harmalkar, a caterer by profession was in the process of finalising his home purchase; however, “When we got to know that there would be an increase in the stamp duty charges, we expedited the process. It may seem like just one per cent, but it amounts to a substantial amount. Thus, just by being aware of the regulatory changes, I saved a substantial amount equivalent to one per cent.”
What do stake holders say?
The real estate sector has been hinting towards a price hike. They have also highlighted that with rising inflation, it would be difficult for them to keep the prices at current levels for long. For similar reasons, the possibility of interest rates going up in near future has also started cropping up. All in all, the sector is signalling towards real estate becoming an expensive affair yet again. “One of the major reasons why property registrations increased significantly in mid 2020-2021 in key cities despite the pandemic was the decline of nearly 15 per cent in overall cost of property. Even the most expensive areas of Mumbai witnessed this drop, thanks to developer discounts, low interest rates, stamp duty cuts, etc. Now with most of these benefits expiring coupled with the rising inflation in construction inputs, the overall cost of property will go up, causing some buyers to go into wait-and-watch mode,” opines Thakur.
The developer community has already reached out to the government to delay the imposition of this Cess. Sandeep Runwal, president, NAREDCO Maharashtra says, “The burden of the Cess might be shifted to the home-buyers resulting in a flunk in the sales and will have a direct impact on the momentum that had picked up pace for the last few months.”
Pritam Chivukula, treasurer, CREDAI MCHI says, “After the pandemic, we had a strong recovery in the real estate sector, thanks to the favourable government policies supported by developer discounts and attractive payment plans. Now, the decision of charging metro cess of 1 per cent will crumble the budget of the prospective home-buyers, who will, in turn, delay their purchase.” The sector now has their eyes on the low interest rates, hoping that home buyers would find solace there and continue the momentum.
While for now the only addition is the Metro Cess, home-buyers should keep a keen eye out for any change in the Ready Reckoner (RR) rates in the next few quarters.
