MC Explainer: How a Rs 1,000 stamp duty slash can cut self-redevelopment cost by 7% in Maharashtra

Developers say this move will make such projects cost-effective. Also, by lowering the stamp duty to a nominal amount, the government is incentivising societies to undertake self-redevelopment, they added.

In order to make self-redevelopment of old buildings in Maharashtra more viable, the state government on July 14 announced that co-operative housing societies that opt for self-redevelopment will have to pay only Rs 1,000 as stamp duty for allotment of apartments in the newly-constructed building to existing owners.

This is a significant drop, considering that the prevailing stamp duty varies between 5 and 7 percent of the total agreement value, depending on the city and district. According to developers in Mumbai, this move will bring down the cost of self-redevelopment projects.

Full stamp duty for new buyers

The state government, however, has clarified that homebuyers purchasing apartments from the open market in such societies will have to pay stamp duty per the prevailing market rate. Also, existing members who opt to purchase extra areas from their society will have to pay stamp duty per the prevailing rate.

This move has come in the wake of Maharashtra Deputy Chief Minister Devendra Fadnavis, on May 8, 2023, directing the state administration to fast-track the implementation of the self-redevelopment policy approved by the government back in 2019. It was also decided to have a dedicated single-window clearance in Mumbai. Applications received here would be processed in three months.

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Special Correspondent|Moneycontrol

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Also read: Maharashtra slashes stamp duty to Rs 1,000 for allotment of apartments in self-redevelopment projects

How will this help?

Developers say this move will make such projects cost-effective. Also, by lowering the stamp duty to a nominal amount, the government is incentivising societies to undertake self-redevelopment, they added.

"The significant reduction in stamp duty, which typically ranges between 5 percent and 7 percent of the total agreement value, will result in substantial savings for housing societies and flat owners. Lower duty means that housing societies can allocate more funds towards actual redevelopment, which includes the construction, and improvements in the infrastructure and amenities. It may encourage more societies to opt for self-redevelopment," Keval Valambhia, Chief Operating Officer (COO) of CREDAI-MCHI, the apex body of developers, said.

Financing an issue

According to developers, even though the stamp duty reduction will bring down costs, not many financial institutions are ready to finance self-redevelopment projects, even  where housing societies have taken over the project following an order from MahaRERA against the defaulting developer.

"Of the many self-redevelopment projects in Mumbai, only about 10 or so may have been completed," said a developer not wishing to be named

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"The intent behind the cut in stamp duty is good, but there are several other factors that need to be addressed. One of the issues is financing. When a lender deals with a developer, there is a personal and a corporate guarantee, but in case of self-redevelopment projects managed by housing societies, that is missing and hence there is a sense of insecurity in lenders," said Harshul Savla, Managing Partner, Suvidha Lifespaces.