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The Maharashtra government's hike in the ready reckoner (RR) rates, or circle rates as they are known, by an average 8.8 percent will hit mid and affordable housing projects, forcing homebuyers to pay more, which would hit sales, experts have said.
Though the rates have been increased after four years, the hike, which kicks in from April 1, comes when the stamp duty waiver has ended and the state has proposed a 1 percent Metro cess.
“The impact of RR rates is expected to be higher in the case of the mid and affordable segments as the rate hikes have been higher for suburban municipal areas,” said Samantak Das, Chief Economist, and Head Research and REIS, India, JLL.
“In fact, these areas constitute a lion’s share of residential sales and launches in the Mumbai metropolitan region. Homebuyers in these regions would have to pay higher taxes and is going to impact residential sales,” he said.
In Malegaon, the rate increase has been among the steepest at 13.12 percent. For Panvel, the increase is 9.24 percent, Pune 6.12 percent, Pimpri Chinchwad by 12.36 percent, Sholapur by 8.08 percent, Nasik 12.15 percent, Ahmadnagar by 7.72 percent, Latur by 11.93 percent and Aurangabad by 12.38 percent.
The ready reckoner rate is the benchmark value of the real estate, used for both, the calculation of capital gains under income tax and payment of stamp duty to the state government. It is linked to all premiums and charges rates payable to municipal corporations. The rates are released at the beginning of the financial year in Maharashtra.
In other parts of the country, the ready reckoner rate, or “guidance value”, is the minimum rate fixed per square feet or square metre of a property by the state government. Even if you sell a house below this rate, the buyer still has to pay stamp duty and other administration charges as per the RR rate.
Not so affordable hike
Das said the impact would largely be regressive as the hike was higher in locations known for mid and affordable housing.
While the government wanted to take advantage of improving sales, it would hit the buyers hard as the acquisition cost would go up due to higher stamp duty, he added.
Rising input costs, the possibility of the end of the cheaper home loans regime and a higher RR rate would seriously impact the residential real estate sector in MMR and Pune, which saw significant sales over the past two years, Anarock Group chairman Anuj Puri said.
The overall low cost of acquisition of properties due to reduced stamp duty charges, developer offers and record low-interest rates was the big reason for a pick-up in sales.
"Interestingly, even with the low stamp duty period expiring in April 2021, we saw robust sales because developers continued to offer discounts and the interest rates remained at an all-time low overall, resulting in a lower cost of acquisition. However, now amid rising input costs, developers have little choice but to increase prices," he said.
In Pune, Thane and Navi Mumbai corporations, the rate has been increased by 6.12 percent, 9.48 percent and 8.90 percent, respectively. This, along with other rising costs, would increase property prices and hit sales.
A recent Anarock survey also highlighted that a price rise of more than 10 percent would have a “high impact” on housing sales, Puri said.
Except Mumbai (2.34 percent), rates of all municipal corporations will be increased by an average of 8.8 percent from April 1, the government said.
The last increase was just before the onset of the COVID-19 pandemic. These were increased by 5.86 percent in 2017-2018, they were stable for two years and in 2020-2021 they were increased by 1.74 percent.
The rate differs based on various factors: whether it’s a residential or commercial property or agricultural land, does it fall in an urban area or a rural zone and so on.
The state government revises the rates based on the movement in market rates so that the scope of using illicit money in real estate transactions is reduced and it can collect appropriate stamp duty.
Developers unhappy
The real estate sector has expressed its displeasure over the hike.
“The real estate industry is going through tough and challenging times due to input material price hike by about 40 percent. Many developers, especially in the affordable category, are unable to buy at these exorbitant rates. This may lead to a temporary closure of work. In these tough times, a hike in the RR rates was uncalled for,” said Anil Pharande, president, Credai Pune.
The rate hike in Pune, Pune extended and PCMC was uncalled for. In many places, there was a mismatch in the RR rates and they had called for a correction, he said.
The government should have realised that the industry was still grappling with problems despite increased traction. The increase in premiums, TDR, and FSI rates would add to input costs and impact the buyer, he said.
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