Maharashtra cabinet on January 6 cleared the proposal to reduce all premiums for on-going as well as new real estate projects by 50 percent, up to December 2021. The decision was taken after the recommendations of the Deepak Parekh committee.
The developers welcomed another strong decision of Maharashtra Government to boost real estate sector which generates maximum employment and had not seen pick up in sales for several years.
"While the fine print is awaited, we believe this is a significant positive for developers considering construction premiums amount to around 25-35 percent of project cost for developers. Consumers are likely to benefit from effective nil stamp duty rates under this scheme. As a result housing demand will increase," Edelweiss said in its note.
Premium typically refers to the multiple charges that are levied by the state with respect to approvals for initiating, progressing, and completing the area or additional area in a project.
According to the Deepak Parekh committee, as of date, there are as many as 22 premiums collected in Mumbai under various heads - including FSI, staircases, lift well, lobbies, etc. This is significantly higher than in other comparable top cities of the country. In Bengaluru, developers have to pay 10 different premiums and charges, and in Delhi five and in Hyderabad just three.
It was decided at the cabinet meeting chaired by chief minister Uddhav Thackeray, a 50 percent discount will be given on all the various premiums levied by the state government on construction projects till December 31, 2021 and also concessions in the premiums levied by all planning authorities/local administrations at their level.
In order to avoid the undue benefit of this concession to a particular group or project, the concession will be considered for premium rates whichever is higher - April 1, 2020, or the current annual market price table.
It was decided at the meeting that all projects which want to avail of the premium concession will have to pay full stamp duty for the customers till December 31, 2021. This would ensure that consumers get the direct benefit of the concession that the state government wants to give in the premium.
"We believe the decision to slash premiums will help sustain the recent momentum in housing demand by bringing down prices for consumers. Major beneficiaries will include developers like Godrej Properties, Oberoi Realty, Sunteck Realty and Kolte-Patil," Edelweiss said.
Siva Krishnan, Managing Director and India Head - Residential Services at JLL India also believes the premium reduction is expected to further trigger the recovery of the residential real estate market which has seen a good uptick in last 2 quarters due to factors like lower interest rates, pro-active measures from the government like stamp duty reduction.
In August last year, the stamp duty rates were reduced from 5 percent to 2 percent till December 2020 and 3 percent till March 2021, which boosted the real estate sector in the last quarter. The lack of affordability had been the prime culprit keeping housing sales subdued in the city. Additionally, the COVID-19 pandemic also hit the sector hard in 2020.
After the cut in stamp duty, Mumbai, the most expensive housing market in India, witnessed registration of around 19,600 units in December 2020 (highest ever) and around 36,800 units during Q4CY20; this versus a monthly average of around 5,650 units during CY19 and around 5,900 units during CY16-19.
"These moves, coupled with the current measures will go long way in enticing both end-users and investors back to the residential market. The country's residential sector is already seeing an acceleration in sales leading to a fast-paced recovery from the impact of the pandemic," Krishnan said.
In the last five months, especially after cut in stamp duty, real estate sector was the star performer with the Nifty Realty index rising 56 percent against 26 percent gains reported by Nifty50.
Sobha, Brigade Enterprises, Mahindra Lifespace Developers, DLF, Godrej Properties, Oberoi Realty, Sunteck Realty and Indiabulls Real Estate shares rallied 45-85 percent in last five months.
"After being hit by the pandemic, the real estate sector has seen a solid recovery on the back of stamp duty reduction and a good festive season. Now this move of reduction in premiums by 50 percent will help rationalize input costs for the developers and will go a long way in expediting project completion thereby keeping price escalation in control," Abhishek Jain, Chief Operating Officer at Satellite Developers said.
"The industry will also witness new launches in the market attracting investments from institutions. All in all a good move that will sustain the growth of the real estate industry in the coming months," he added.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.