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The hidden star in Mumbai's housing registration data: PAAA

The city is in the middle of a redevelopment boom, with small old buildings making way for a big new ones and that is where the Permanent Alternative Accommodation Agreement is playing the lead role

Representative Image of Mumbai, India - Unsplash

Representative Image of Mumbai, India - Unsplash

Since November 2021, housing demand from builders had started softening in Mumbai. Except select projects, the trend was all too visible yet registration of homes was strong. In fact, in March 2022, registrations were the third highest in a decade.

One argument was that people rushed to register their homes ahead of the 1 percent metro cess kicking in from April. The other argument was that the secondary market was still holding up strong, even though the primary market had moderated. Both are valid reasons.

But, a third factor has emerged as a significant player—the Permanent Alternative Accommodation Agreement, or PAAA.

Something old, something new

What is this PAAA? It is an agreement in response to redevelopment activity in Mumbai. Last year, redevelopment transactions witnessed a sharp surge in the city due to the FSI discount offered by the Maharashtra government.

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Redevelopment is basically a small old building replaced by a big new building—subject to municipal and other norms.

The apartment owners in the old building are given apartments in the new one free of cost by the developer and some flats are kept for sale by the developer.

The builder recovers costs and makes a profit by selling these units in the open market.

For the person taking an apartment on sale, an “agreement for sale” is executed. For the person who has got the apartment free of cost, a Permanent Alternative Accommodation Agreement is executed.

Technically, the agreement for sale and PAAA are almost the same. The consideration in a sale transaction is money, while in a PAAA it is giving away the old premises.

Why is the “Permanent Alternative Accommodation Agreement” important?

This agreement provides legal sanctity to the old apartment owner with regards to their new apartment in the new building.

It is only after this agreement is executed that homeowners vacate their old building. That sets the ball rolling for a developer to get started with the demolition of the old building and thereafter construct the new building.

It is this category of agreements that has seen a sharp rise this year, driving up the total registrations in Mumbai.

Redevelopment boom

Data disseminated by real estate intelligence platform CRE Matrix shows that in the first three months of the calendar year 2022, there were a stunning 5,994 PAAA transactions that were registered.

In comparison, the 12 months of 2019 saw 7,475 transactions. It is likely by the end of April 2022, PAAA’s in the year would have exceeded the levels of 2019. In 2018, 8,886 PAAAs were registered.

Their relevance can be gauged from the fact that these agreements form 24 percent of all housing sale registrations this year. Historically, they accounted for only 10-13 percent of all registrations.

Abhishek Kiran Gupta of CRE Matrix says that “these registration figures clearly indicate that Mumbai is undergoing significant redevelopment”.

While these transactions have inflated the total number of registrations, they have deflated the average transaction size for housing registrations.

Stamp duty varies according to the nature of the redevelopment (SRA, society redevelopment, etc). But in all the cases, the stamp duty to be paid is petty and marginal in comparison to a conventional sale transaction. This has distorted the average transaction size by bringing it down to all-time low levels.

Historically, the average transaction size hovered in the range of Rs 1.45 crore. That number has dropped to Rs 1.15 crore this year.

So how should one interpret the data? The data’s underlying message is clear even after removing the PAAA, registrations remain steady and strong. But it is not booming in the manner that an optical reading of the data suggests.

Besides, the numbers will go back to normal after this burst of PAAA transactions is over. PAAA may be the star for now but will fade away once the recent redevelopment boom slows down.



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Vishal Bhargava is a real estate enthusiast who views and reviews new projects, when not busy with his newstoon platform Snapnews. The views are personal.
first published: Apr 25, 2022 01:08 pm
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