Should homebuyers take the plunge with real estate developers doling out cash discounts and freebies, lower interest rates, GST, stamp duty waivers, and schemes such as the 10:90 one, not to mention the offer to buy a home at 20 percent below circle rate?
This Diwali comes in the midst of the COVID-19 pandemic and brings with it a wide range of freebies, discounts, low interest rates, stamp duty and GST waivers, and schemes such as the 10:90 for the first-time homebuyers.
Finance Minister Nirmala Sitharaman’s announcement concerning relaxed income tax rules to allow the sale of primary residential units of up to Rs 2 crore below the circle rate will also lead to more money in the hands of the buyers over and above the Rs 2.67 lakh interest rate subsidy already available under the Credit Linked Subsidy Scheme (CLSS) scheme.
What this means is that homebuyers will now be able to buy an apartment from a developer at 20 percent lower than the value arrived at according to the circle rate without attracting additional income tax. The developers too will not have to pay income tax for such a deal. Earlier, only 10 percent difference between the circle rate and the agreement value was allowed, but now the government has increased the differential to 20 percent.
To cite an example, if a homebuyer (under the 20% tax slab) purchases a house worth Rs 80 lakh and the circle rate is Rs 1 crore, he will not have to pay the 20 percent tax on the differential amount which is Rs 20 lakh (under the head tax from other income). This means that his gain is Rs 40,000. The builder too will not have to pay income tax on the sale worth Rs 1 crore, but on Rs 80 lakh.
The first-time buyer will also be able to avail of the Rs 2.67 lakh interest subsidy under the CLSS scheme provided his income is not above Rs 18 lakh.
This may help developers recover sales after a lull of six months on the back of pent-up demand and also help them clear their unsold inventories, especially in areas where the circle rates are over and above the market rates, estimated at around 6-7 lakh units in major cities.
Developers may now have the incentive in the form of this revised tax provision to pass on the benefit of lower market prices to buyers without incurring additional tax liability.
The scheme also has a timeline. This is similar to the Maharashtra government’s stamp duty waiver which is valid until March 31, 2021. This relaxation is applicable only until June 2021.
“The government has strategically put a time stipulation to ensure that only serious first-time homebuyers sign the dotted line and avail of the benefit. The timeline will create a sense of urgency and make sure that only buyers who may have zeroed in on a property or were waiting on the fence will come forward and close the deal by June next year,” explains Samantak Das, Chief Economist and Head of Research & REIS, JLL India.
“The tax relief announced by FM Nirmala Sitharaman will help the buyers expedite their decision of owning a home. The market has already started picking up pace, and tax relief on the differential between circle rate and the actual price will help the buyers get additional financial help as developers are already extending lucrative offers to them. The decision by the government is going to improve the sentiment further, and help reduce the unsold inventory in the sector,” said Deepak Kapoor, Director, Gulshan Homes.
“For homebuyers, it is a clear added financial benefit to round off the existing offers and discounts. Additionally, the consequential relief up to 20 percent to buyers of these units under Section 56(2)(x) of the IT Act for the said period will definitely boost demand, especially in the affordable and mid segments,” said Anuj Puri, Chairman, ANAROCK Property Consultants.
So, what's on offer this festive season?
Cash discounts are being offered on the per square feet price. For instance, on the brochure rate of Rs 4,000 per sq ft, a cash discount of Rs 200 is offered. On a 1,000 sq ft apartment, this works out to Rs 2 lakh.
Freebies such as air conditioners, television sets, furniture, modular kitchens, zero maintenance and club membership, gold coins, and iPhones are also being offered.
A GST waiver is also being offered by developers. At present, GST is charged at 5 percent for residential units outside the affordable housing segment. At the time of registration, the buyer has to pay stamp duty and registration charges.
Stamp duty waiver: While stamp duty varies from 3 to 10 percent depending on the state, registration charges work out to 1.1 percent on a property worth over Rs 25 lakh. The Maharashtra government has decided to temporarily reduce stamp duty on housing units from 5 percent to 2 percent until December 31, 2020, to boost the stagnant real estate market hit by the COVID-19 pandemic. Stamp duty from January 1, 2021, until March 31, 2021, will be 3 percent. Along with GST, many developers are waiving off stamp duty and registration charges, which means further savings for the buyer.
However, what takes the cake are the property swap schemes. In these COVID-19 times, a few brokerage firms and developers have launched property swap schemes to help homebuyers and investors stuck with projects for years to exchange their residential or commercial properties with a ready-to-move-in project through contract restructuring.
“With home loan rates touching decadal low, along with several discount schemes offered by developers, makes it an ideal scenario to invest or purchase a home, because it not only gives a sense of security, but also becomes an financial asset for the future,” said Abhishek Kapoor, COO, Residential, Puravankara Limited.
For Diwali, Puravankara's 'Diwali HomeBonanzaa' valid till November 15 offers smart home devices, saving up to 20 lakh, and some on spot offer. Whereas Provident's "Homewail Diwali' gives customers tailor-made options like group buy, bid to buy, flash sales, scratch and win options through the home-booking engine site Bookmyhomenow.com.
Given the positive sentiment around home-buying in recent months, the Maharashtra Chamber of Housing Industry (CREDAI-MCHI) is expecting residential sales to surpass pre-Covid-19 levels with at least a 10-15 percent increase during November 2020 as compared to the corresponding month last year, at the back of the festive season. Earlier this week, Knight Frank reported that there has been a 36 percent y-o-y rise in residential property registrations in the Mumbai Metropolitan Region (MMR).
Deepak Goradia, President, CREDAI-MCHI, believes that the government’s decision to cut stamp duty bodes well for all the stakeholders, which is also reflected with record stamp duty collections in Maharashtra.
Besides, the finance minister’s decision is also bound to help clear the unsold residential and commercial inventories and will provide a further boost to homebuyers’ sentiment. “Coupled with low home loan rates, reduction of stamp duty in Maharashtra and the overall change in the perception of real estate during this pandemic, we can expect a good surge in consumer enquiries which will help revive the economy,” he said.
Mumbai-based Nahar Group is offering the 10:90 scheme under which the homebuyer pays 10 percent at the time of booking and the rest on possession. Hiranandani Group has announced an assured rental scheme for its premium township Hiranandani Gardens, Powai. This is for its ready-to-move-in 2BHK units under Atlantis.
A flexi pay scheme is available for Regent Hill project which has on offer 1 BHK units in Powai. Under the scheme, the buyer pays only 5 percent at the time of booking and no EMI for the next 12 months.
Bengaluru-based Embassy Group is offering a 10:90 scheme for its luxury homes.
“For the premium segment we plan to roll out an EMI holiday scheme, which assures no payment or EMI hassles until possession of the project,” said Shambhavi Kadam, Head Product Strategy, Residential Business, Embassy Group.
At NCR-based Gaur World SmartStreet’s 'Mauke pe Chauka' scheme offers an easy payment plan with 10 per cent down payment within 30 days, 40 per cent with one year, and the rest 50 per cent at the time of delivery.
Ajnara India Ltd is offering a 10:90 payment plan in Ajnara Daffodils, 30:40:30 payment plan in Ajnara Ambrosia, and 20:20:20:20:20 plan in Ajnara Fragrance project.
Mahagun Group is offering a multitude of discounts in the form of 25 gram gold, pay 25 per cent now and the rest later, waiver of 25 months’ maintenance, 25 per cent of on stamp duty, and compensation of 25 per cent in case of delay in the project.
At Mumbai-based Ashwin Sheth Group, the company is offering a One Price Any Floor, Easy 10:20:30:40 payment options. The offer is available on its ongoing and ready to move projects - Sheth Montana at Mulund, Sheth Avalon and Sheth Zuri at Thane and Sheth Midori at Dahisar.
Oberoi Realty is offering a bank and developer subvention scheme along with a 100 percent refund on stamp duty thereby minimizing the initial contribution required to be made by the customer. These schemes are available for company’s under construction projects at JVLR, Borivali and Mulund.
Under the bank subvention scheme, the customer pays 15 percent at present and 85 percent on possession, and under the developer subvention scheme, the customer pays 25 percent at the time of booking and 75 percent on possession.
Tata Housing Development Company (THDC) has announced a scheme titled 'Wow is Now' for homebuyers under which they will have to pay only 3.99 percent flat interest rate for one year and the rest would be borne by the company. The scheme is applicable on 10 projects until November 20.
What should homebuyers keep in mind?
Homebuyers should evaluate festive offers and freebies on their intrinsic value rather than their flashiness.
If a homebuyer is being offered a freebie that he already owns or does not need, he can opt for other discounts. For instance, if a developer has offered ACs in two rooms and a hall in a 2BHK apartment, one can instead seek a reduction of a lakh from the total outgo. Buyers should get a fix on how these freebies translate monetarily.
Buyers should also remember that it makes sense to buy residential property only if it is for self-use but not for investment purpose. This is not the time to hope for immediate capital gains.